Surely if you purchase a domain (domain1.com) and redirect it to your existing domain (domain2.com) you expect to loose all ranking for domain1.com. If 301's are used then the objective is simply to pass on authority, not dominate the search results with 2 domains. If you want to keep domain2.com in the index then you would take Rebecca's option 2 or 3.
However, what do you think about buying expired high PR domains and creating local directories, business reivew, and event calendar sites that actually provide a value to the community? Then include a sponsored link from local business that is trying to rank? Do you think a method like that is a. morally soluble and b. viable long-term because it creates value?
If you buy keyword specific domains, you're really buying the type in traffic.  I use the URL builder and redirect through that URL so you can see how much traffic your getting from the keyword domain.  There seems to be no rythme or reason to what keyword domains deliver traffic and what don't.  By tracking traffic with the Google URL builder you get a feel for what names are giving you traffic and which are not. ie. the plural, the singular, two words, three words, the possessive, etc.
If you opt for a new domain, you have to spend your time, money, energy, and efforts for building up an authority site. On the other hand, if you choose such a good domain from an expired domain drop, you can be certain that it will already have an authoritative position in your niche. So, it will be possible for you to build an authority site. Achieving the first page ranking on the search engines will also be easier.
A variety of things can happen to a domain once it expires. It can be renewed by the registrant, be purchased at auction, return to the registry (the master database for domain names), or become subject to domain squatting. Before any of those things happen, the party who was leasing the domain (the registrant) will usually have opportunities to buy back the rights to use their expired domain name. However, it's much simpler to renew the domain name before it expires.
Here's a test I have in process.  I bought an old $5 closeout domain from Godaddy TDname expired auction.  I put a quick minisite up and linked to it with a crazy anchor text phrase.  The domain is ranking for that crazy term now.  It's gone through one pagerank update and I'm waiting for a second to come.  Then I'll redirect the domain to another minisite.  I suspect the second site won't rank for the anhor text, but we'll see.  
Here's a test I have in process.  I bought an old $5 closeout domain from Godaddy TDname expired auction.  I put a quick minisite up and linked to it with a crazy anchor text phrase.  The domain is ranking for that crazy term now.  It's gone through one pagerank update and I'm waiting for a second to come.  Then I'll redirect the domain to another minisite.  I suspect the second site won't rank for the anhor text, but we'll see.  
If you opt for a new domain, you have to spend your time, money, energy, and efforts for building up an authority site. On the other hand, if you choose such a good domain from an expired domain drop, you can be certain that it will already have an authoritative position in your niche. So, it will be possible for you to build an authority site. Achieving the first page ranking on the search engines will also be easier.
We are a LauncHUB funded Startup that focuses on big data research of domain names and Whois information. SEO experts can use our unique system for finding expired domains with authority and backlinks. Investigators can use the same database to find information for domain owners and hosts with Reverse Whois and Reverse IP tools. We can also offer brands trademark monitoring in the vast pool of ccTLD domain names.
Backlinks – These are basically anchor links present on external websites that take the visitor back to a domain. The higher the number and authority of backlinks, the higher the authority of a domain. For example, if a domain has a backlink from Forbes, TechCrunch or BBC, it’ll gain a lot of authority in the eyes of Google and other search engines. It’s like attaching a reference letter from Bill Gates to your CV.
Page authority ranking criteria are similar to domain authority. It’s ranked on a scale of 1 to 100. Page Authority measures the predictive ranking of a web page. The page authority of a website can change depending on various metrics. Search engines examine the relevance and authority of a page based on its contents and external links. If a webpage has links to higher authority sites and has keywords in it, its authority ranking will increase.
The grace period and the redemption period (if the registrar offers both) have to expire before someone who is not the original registrant can buy the rights to use an expired domain name. These two periods together could add up to only a few weeks, or could last well over a year. Following this, the domain is in a 'pending delete' stage for a short stretch of time.
Sometimes people purchase domains that they plan to build a website on or sell in the future, but it just doesn’t end up happening. If an individual decides that it is no longer worth the yearly investment of keeping the domain in their account, they may choose to let it expire. Or, someone might just forget to renew the domain before the expiration date. If this happens, it’s a great chance for other domain investors to score rare domain names that are pending delete. Spending time perusing the list of recently dropped domains can be a worthwhile way to find high quality domains.
Especially each and every Domain Name always renew after a year. While People make mistake sometimes or forget to renew their crucial domains. Therefore, these domains are available to purchase by others. Users spend years and lots of money in building and marketing their website. If they suddenly shut their business or don’t want to maintain their website anymore. As a result, these sites have considered Expired Domains. And you can pick up anyone. These domains may have high residual traffic, backlinks, and history. Hence, you can take advantage of these domains.
Let’s just say for example we wanted this site, crystalgiftsworld.com. It looked good based on our analysis and we’d head over to Snap Names, Nameja is another one and what these service do is they have special technology on their site that allows them to try  to register a domain on your behalf over and over again. Okay? If you tried to do that your IP would get banned, but they have some system where they know how to do it just enough to get the domain, but not enough to get blacklisted.

What I like to do is sort by DP which stands for domain pop, and this is basically the number of linking root domains. So, BL is the number of back links. As you know that can be somewhat misleading if they have a lot of site wide links or multiple links from the same domain. I like to sort by domain pop. What that does is it brings up the sites with the most amount of referring domains.
Finally, you want to head over to domaintools.com. Then put the domain into here. What this will do is it’ll show you the history of the domain, because a lot of times these domains have been dropped like four or five times and a lot of people in SEO feel this way. I’m not sure about it. If a domain has been dropped several times, then Google does actually devalue the links pointing to that domain. So, as you can see I just changed registrars a few times and it hasn’t been dropped or else it’ll say one drops or two drops.
Typically there is a grace period during which the registrant can still buy the domain back without paying additional fees, but the length of it varies from registrar to registrar. It could be as short as a week or two, as long as a year, or not offered at all (although reputable registrars offer a grace period). The length of the grace period also depends on the kind of top-level domain (.com, .org, .net, etc.) used.

What I like to do is sort by DP which stands for domain pop, and this is basically the number of linking root domains. So, BL is the number of back links. As you know that can be somewhat misleading if they have a lot of site wide links or multiple links from the same domain. I like to sort by domain pop. What that does is it brings up the sites with the most amount of referring domains.
A variety of things can happen to a domain once it expires. It can be renewed by the registrant, be purchased at auction, return to the registry (the master database for domain names), or become subject to domain squatting. Before any of those things happen, the party who was leasing the domain (the registrant) will usually have opportunities to buy back the rights to use their expired domain name. However, it's much simpler to renew the domain name before it expires.
Contains, Starts, Ends You can use the search bar to search for domains that contain particular keywords you are seeking, e.g. a search for "car" will yield results for all expired domain names that contain the term "car". You can also use the search tool to find domains that begin, or end with the search term too, with the drop down box next to the search form.
Sir I am a newbie and a lot interested in doing this business but I don’t know fron where and how to start it. How to purchase where I have to pay and how I have to pay all sort of questions are there in my mind. So sir if you could email me the details then it would be of great help. Its been months searching but I hadn’t purchased any domain yet.
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