Ever Done a Buy with Lease Back Deal?

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?

Elliot Silver
Elliot Silver
About The Author: Elliot Silver is an Internet entrepreneur and publisher of DomainInvesting.com. Elliot is also the founder and President of Top Notch Domains, LLC, a company that has closed eight figures in deals. Please read the DomainInvesting.com Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest. Reach out to Elliot: Twitter | Facebook | LinkedIn

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