discuss Selling a lease

[fka1080405]

I sold a domain today via lease-to-own over a very long term. Another lease on the pile. The sale price is a good return on investment (8x what I spent a few months ago) so it is a great sale, but a couple of hundred dollars per month is a lot less useful than a few thousand dollars now. And that has me wondering: has anyone sold an active lease to another investor (or bought one)?

For example: a seller sells a domain to a buyer for $10k on a lease-to-own over 10 months (paying out $1,000 per month). The sale is worth $10k over 10 months but there is a risk that the buyer will cancel the lease and the domain will revert to the seller. The maximum amount the lease can pay out is $10k but it could be as low as $1k (if the buyer cancels the lease after the first payment).

The lease is an asset that is worth between $1k and $10k. An investor could come along and offer to "buy" the lease so that the seller immediately receives payout (from the investor) and the investor then receives all payouts from the buyer (and the right to receive the domain if the lease is cancelled).

Nobody would pay $10k for an investment that can return a maximum of $10k with a risk of returning just $1k. The $10k would need to be discounted. If the investor thinks there is a high chance of the lease being cancelled and they don't think the domain is valuable, they might be willing to buy the lease for just $2.5k. If the investor thinks there is a high chance of the lease finishing and they think the domain is very valuable, they might be willing to buy the lease for $7.5k.

My assumption is that this type of arrangement would be so high risk[1] as to not be worth it. I personally can't imagine buying a lease and I can't imagine the amount someone is willing to pay for a lease would be worth it for me... but I'm curious if anyone has done this before? Are there any platforms that have tried this? Are there any investors who would want to buy an active lease[2]?

[1] A seller could arrange for someone to buy their domain on a lease-to-own with the intention of cancelling the lease immediately after an investor buys the lease
[2] I'm not selling my leases but I'm curious if there is an appetite for this type of arrangement and whether it's worth thinking about (maybe it could change how I think about agreeing to lease-to-own with buyers)

 

[VadimK]

That's an interesting question. I see three problems here:

1. There is no marketplace for pending lease-to-own deals. Such deals are confidential, and unless you report them to NP or X, no one knows about them.

2. I don't see how point 1. (creating such a marketplace) could be solved, because there's a second problem: there's no upside for the buyer. They are just paying for their domain, and it is simply not worth it for the buyer to agree to make the deal public so the seller and investor can ''play games''.
It has to be attractive to the seller, the investor, and the buyer - but so far it's only attractive to the first two. In theory you could offer the buyer a discount, but that makes it too complicated (small margin and even higher risk) for the investor.

3. And on top of all that, you'd have to get the platforms to agree and implement some kind of transfer-of-ownership mechanism, which I don't think will be easy at all... (they are actually the fourth party involved - and be like - ''hey, what's for us here?'').

 

[Future Sensors]

It feels like adding another layer of complexity when the current LTO setup is already inconsistent across marketplaces and full of unanswered legal questions.

From a commercial and economic perspective, it's undeniably thought‑provoking.

 

[Eric Lyon]

Ya, I don't see how a binding lease contract for a specific domain change of ownership during the active lease could be simplified.

Not only that, it opens the door to massive potential manipulation, where the domain owner uses an associated account to make a couple lease payments from themselves as proof of lease and then resell the risk of the leased domain to a new investor, just to stop paying on the lease after they take the bulk of the monies.

Example:

• Lease is $5,000 for 24 months = $204.33 per month
• Buyer leasing pays 2 months = $408.66
• Resells the lease to another investor for $3,000 = $2000 profit potential
• Buyer leasing stops paying lease
• New investor makes no monthly lease revenue
• Seller of the lease takes home $3,000 - any fee's the platform charged the lease contract and % of the first 2 payments they paid themself.

I don't see how protections could mitigate the above scenario effectively. I don't think I would ever take over a domain lease contract with that in the back of my head slapping me silly every time I considered the thought. lol