This guest post is by Adam Paddock of GoForThe.com.
Domain name leasing has been steadily gaining popularity with several big industry players like the Domain King Rick Schwartz recently pushing the practice mainstream.
Skyrocketing aftermarket retail pricing of premium .com’s, combined with a lack of traditional financing options, make leasing a great solution that can provide the liquidity needed to close a huge deal.
What is a domain lease?
Leasing provides lessee’s (buyers) with access to premium (high-value) domain names without the high initial cash requirement of a traditional sale.
Similar to an auto lease, a domain lease enables a lessee to use a domain name over a specified period while they make scheduled monthly lease payments to the seller (or lessor).
Many domain lease agreements contain some sort of Purchase Option; a clause that gives the lessee the right to buy the domain for a pre-agreed upon price at the end of the lease.
A real-world example
To illustrate how domain name leasing works we can study the deal we completed on a 7-figure gambling related domain.
In this case a buyer and seller were engaged in failed negotiations for over a year. The primary issue preventing the sale: the buyers inability to come up with enough cash (or financing) to complete the million dollar purchase.
In less than a week, both parties agreed to a domain lease with an option to purchase under the following terms:
- Lease Period: 2 years (24 months)
- Down Payment: $15,000
- Monthly Lease Payment Amount: $1,000
- Purchase Option: $1,500,000
I want to offer my thoughts on why leasing is a great idea from a domain investor’s perspective and also want to share why I think it’s advantageous for an end user to lease a domain name.
Lessee (buyer) benefits
• Premium Domain Access. Lessee gets full access to the perfect domain name; he quickly developed a website and began operating his business (generating revenue). Also, leasing allowed the lessee to have more funds to dedicate to site development and marketing.
• A Simpler Option Than Financing. With few sources of domain financing on the market securing a loan can be difficult. Even worse, high interest rates can make traditional financing very expensive. Leasing enabled the buyer and seller to come to terms without having to involve a financial institution.
• Purchase at Any Time. If the lessee’s site starts to take off he has the option of purchasing the domain name outright for the agreed upon purchase price of $1,500,000. The lease agreement stipulated that the purchase can be made anytime during the lease or upon completion of the term.
Lessor (seller) benefits
• Higher Possibility of a Sale. Finding an interested and financially qualified buyer for a premium domain can be difficult, especially with a 7-figure price tag. Once leased, the likelihood of a sale is increased as the buyer invests in building a business on the domain name. The cash flow generated from operating the site during the lease can also help buyers make the final purchase.
• Increased Earnings. Gambling domain names are always relatively strong earners when parked. However, everyone knows parking revenue is on the decline in recent years. This lease agreement provided the seller with monthly payments that are higher than his historical monthly earnings from domain parking.
• An Increase in Domain Value. “Goodwill” stemming from the buyers development and use of the domain during the lease term often times increases the value of the domain name. Thus if the Purchase Option is not executed, the seller gets a domain back that has appreciated in value.
Domain name leasing can be a great alternative to a traditional sale.
A lease typically allows buyers to “get into” their ideal domain for low monthly payments while providing simultaneously providing sellers with more income than parking and a higher probability of a successful sale.
If you’re currently trying to buy or sell a high value domain, give leasing a try.
You are more than welcome to share your thoughts on this.
Adam Paddock is the founder of GoForThe.com, a premium domain buying and selling service specialized in Seller Financing and Domain Leasing. For more tips on domain leasing follow us on Twitter or Google+.