Lease to Own a Domain Name
I was giving advice to someone today about buying a domain name that is currently generating significant parking revenue. The owner is using a min-site with Adsense to generate this revenue (we’ll say $5,000 annually for the sake of this post), and the potential buyer thinks he could earn much more if he develops it further. The owner’s asking price is steeper than the buyer is willing to spend (let’s say $100,000), but I think the buyer can get creative with his offer in an effort to strike a deal.
In a situation like this, I think a lease-to-own offer would be a smart way to negotiate to buy the domain name. I advised the potential buyer that it might make sense to offer the owner $7,500/year for 3 years with a $100,000 option to buy in year 4. I would imagine this would placate the owner because he will eventually realize his asking price, and he will also earn 50% more revenue for the next 3 years. The buyer would then have 3 years to try and monetize it better to justify the asking price. If he fails after a year, he can revert to the owner’s parking strategy and lose just $5,000 in years 2 and 3, as the name would earn $10,000 and he is on the hook for $15,000. If he had originally agreed to the asking price, he would be out $100,000.
I haven’t had the opportunity to use this negotiation tactic before, but I have another friend who had success with this. His main product name in the .com was owned by a domain investor, and he owned and operated the .net for several years. The owner of the .com wouldn’t sell for a “reasonable” price, so my friend offered him a 10 year lease with an option to buy. Sure, nobody can speculate on where things will stand in 10 years, but assuming we are still using domain names, he won’t have to worry about losing traffic any longer. It worked well for both parties in this situation, and I think that is the key.
For a lease to own offer to work, it has to be financially beneficial to all parties, especially the owner. The buyer gets to “try out” the name for the term of the lease, and the owner will generate more revenue than had he kept it parked. If the buyer doesn’t follow through after the lease is up, the owner will realize the buyer’s goodwill and traffic from the term of the lease.
One thing to keep in mind if a potential buyer approaches you with this is that you may want to consider adding restrictions to what the buyer can display on the website during the term of the lease. Child porn, illegal drug sales or illegal downloads could actually harm the value of the name, and if a policing agency would see the owner’s name on the Whois, the owner could potentially be blamed for the site. It’s just something to keep in mind. Aside from that, I think this is a good negotiation tactic.
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