I have had quite a few lease to own deals in the last couple of years. It is a great option for a scrappy startup or financially strapped business to acquire a domain name at a lower up front cost.
In the real estate world, a less common deal structure is the purchase with lease back deal. A buyer will purchase a home and lease it back to the former homeowner for a set period of time. This is often done to give the home seller time to find another home or allow the seller’s children to finish the school year without disruption.
I think this type of deal could work in the domain name industry as well, and I am curious if anyone has done it.
In the last year, funding for startups has gotten more difficult to obtain. It has also become more time consuming to raise capital. A startup that operates on an exceptional domain name might be interested in selling the domain name to raise capital and leasing it back from the buyer for a period of time. I would imagine there would be a set period of time rather than a never-ending lease, since that kind of deal wouldn’t be great for the startup.
Here’s an idea how it would work.
Let’s say a company operates on a great one word .com domain name that is worth $500,000. A domain investor would purchase the domain name from the startup for $400,000 cash. The startup would then pay something like $12,000/month for 4 years and then reacquire the domain name. The investor would make $176,000, minus fees, if the startup pays in full. If the startup stops paying, the investor would keep the domain name and all payments.
I doubt many banks – or any – would take a domain name as collateral. There is no central MLS-type of service to accurately appraise the market value of a domain name. Domain names are also illiquid assets, so it would be tough for a bank to fairly value them.
I think the difficulty in doing something like this is two fold. First, connecting with a startup to discuss this would be a challenge. I can’t imagine anyone would be wiling to spend time soliciting startups for this type of deal. The second issue is coming up with a fair valuation.
I would consider offering this type of deal to a startup operating on a fantastic one word or even 3 letter .com domain name.
Have you ever done this type of deal before?