Domain Name Leasing and Financing

By | April 23, 2014

You frequently hear about buying and selling domain names, but a topic that does not get that much attention is domain leasing. Several domain brokerages have tried to focus on domain leasing (where they offer to rent the domain to the end user for a monthly fee, sometimes with an option to buy it), without much success.

I have had much better results by instead offering domain financing to buyers, even though this is really just another form of domain leasing. It is all a matter of how it is presented to the buyer. When I offer to finance a domain, I keep ownership of it until the domain is paid off in full (or even better I have ecop.com hold it in escrow), but the buyer can start using the domain right away. The key is that I don’t charge any interest and I don’t charge a penalty if the buyer backs out. If they stop making payments, the contract is cancelled, and the domain reverts back to me. It is basically like they are leasing the domain, with all their payments going towards owning it.

This type of deal allows the buyer to start their website with much less risk, because they can have a great domain for their business, but if after a year or two they are not making money, they can decide not to pay me. All they will have lost is their small down payment.

A recent example of this is my Heels.net domain. The buyer has a business named Heels Coaching that offers life coaching services to women, and we settled on a price of $10,000 with $1,000 and the rest due in 2 years, with the domain held in escrow at ecop.com. The $10,000 price was higher than I would have expected to get from a cash sale, so even if there was only a 50/50 chance of her paying the balance at the end of 2 years, it was worth it for me. Also, I made $0 from parking the domain, and had never had any good offers on it, so worst case making $1,000 in income from it for those 2 years was a good deal for me. After 2 years it turns out she decided to use the domain HeelsCoaching.com for her site instead, but I was fine with that. In fact, I think it was a good decision for her.

Here are some other examples of domains that I financed:
VisitRome.com – $37,000 price, payments of $750-$2,000 month over several years. The buyer paid for the first 3 years, then stopped.
GetVisibility.com – $3,000 price, $300 down, balance due in 1 year. The buyer only paid the down payment.
BuyLingerie.com – $20,000 price, $1,000 down, $100/month month for 2 years with the balance due at the end of 2 years. The buyer paid for about a year but then stopped.

I also once had a valuable domain I financed over 3 years, but after a year the buyer offered to pay off the balance early at a 20%
discount, so I took their offer.

One thing to consider when leasing/financing a domain, is that since the domain is still in your name, you are still legally responsible for anything that happens with the domain, so you need to make sure the buyer is not using the domain for anything illegal. I have a clause in the contract I use that talks about this. In case it is of any use to anybody, below is a copy of the contract I use. I am not a lawyer, and have never consulted a lawyer about domain sales, so I have no idea how well this contract would stand up in court. Also, my posting of it should not be taken as legal advice, and you should consult your own lawyer about it. My posting of the contact is for reference only. I am sure there are all sorts of things I left out of the agreement, such as jurisdictional issues and an arbitration clause, but I tried to keep it as simple as possible so it would fit on 1 page and not scare away buyers. It is actually a modified version of the standard domain name sales contract I have used over the years that does not involve leasing or financing.

DOMAIN NAME PURCHASE AGREEMENT
This Purchase Agreement (the “Agreement”) is entered into between _______________ (“Buyer”), and ________________________ (“Seller”), Seller owns all rights to the Internet domain Name “________________” (the “Name”). Buyer desires to purchase all rights to the Name, and the Seller desires to sell such rights to Buyer, on the terms set forth in this Agreement. Therefore, Buyer and Seller hereby agree as follows:

1. Purchase of the Name. Seller hereby sells, assigns and transfers to Buyer all right, title and interest in and to the Name, including without limitation any trademarks, service marks, copyrights and other intellectual property rights, whether or not registered, in the Name and including all associated goodwill and the all rights and access to the Name in its present form (the “Rights”). Buyer will pay a purchase price of $___________ USD, payable with an initial payment of $_______ due within 2 weeks of the date of this agreement, and then the remaining balance ($_________) payable 1 year from the date of this agreement, by methods such as mail or wire to the account detailed below:
[my wire/mail/Paypal info goes here]

Or, the Buyer can use escrow at ecop.com if they pay the escrow fees.

The purchase is not complete until the buyer pays the full $__________ purchase price. Until the purchase is complete, the Buyer has the rights to use the Name, but it will stay under the ownership of the Seller. If the buyer does not make their payments to buy the Name, there is no penalty but the buyer will lose all usage and rights to the Name and none of their money will be refunded to them, however in this case no further money will be owed, and the agreement will be terminated.

2. Transfer of the Rights. Upon receipt of the full $________ payment described in Section 1, Seller will prepare and deliver to the appropriate parties all forms and other documents necessary or advisable to transfer the Rights and the Name to Buyer, including without limitation all forms required to be filed with the domain registrar in order to transfer the Rights to Buyer and any other documents reasonably requested by Buyer for such purpose. Ownership of the Name will not be transferred to the Buyer until the full $________ is paid. Following official transfer of the Rights to Buyer, or (if sooner) 7 days after receiving the initial payment described in Section 1, Seller will discontinue any use of the Name of any kind in any medium. Search engine listings for the Name will not be changed by the Seller, but may be modified by the Buyer at anytime.

3. Ownership of the Rights. Seller hereby represents and warrants to Buyer that they are the exclusive owners of the Name and that neither the Seller is bound by any contract or arrangement of any kind that conflicts with the terms of this Agreement or that might in any way limit, restrict or impair the Rights granted to Buyer under this Agreement.

4. Included in this sale, is the domain _________________. The Seller agrees to modify the domain name registration once the full $__________ payment is paid by the Buyer, for the Name, so as to transfer ownership to the Buyer. Also, once the buyer makes their initial payment of $________, the Seller will modify the DNS information for the Name so it will start working on the buyer’s server so they can build a website on it, if that is what they desire. This will allow the buyer to start using the domain name before the actual ownership is transferred. Ownership of the Name will not be transferred until the full $__________ purchase price is paid.

5. Buyer agrees the Name will not be used for porn, warez, spam, HYIP or money schemes, taking bets (“online gambling”) or any other illegal products, content, or services while the Seller still owns the Name. Seller is not responsible for any of the Buyer’s actions while they are using the Name.

6. Entire Agreement. This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof and supersedes all prior agreements or understandings relating thereto. This Agreement may not be modified except in writing, signed by both parties.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

Buyer:
Signature: ________________________

Seller:
Signature: ________________________

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24 thoughts on “Domain Name Leasing and Financing

  1. Aron

    I think I speak for everyone: Man, I wish you’d blog more often. You always have great real-life experiences to share. Thanks for the insight, as always!

    – Aron

  2. Schwartz's Anus

    If your results are anything to go by, it shows why domaining leasing/financing/etc is strictly niche

    Most change their mind after their initial impulse when they realize the “ideal” name is not necessary & won;t get you all those free “type ins”…saving you from paying all those Google ads…the usual domainer meme BS

    LOL

    1. Eric Borgos Post author

      I would say it is split 50/50 in terms of how many end up paying. I just gave examples of sales that were not completed because it is hard for me to remember with the completed sales if I promised the buyers not to disclose the price. Overall it represents less than 5% of my domain sales (and the completed deals only half of that), so you are right, it is niche.

  3. RobbiesBlog.com

    Excellent article Eric,

    You really do offer some great insight into the domain space and what actually works, I do wish you would write more too however I cant really say that when I haven’t blogged much this year.

    Keep up the great articles!

    Regards,

    Robbie

  4. Samit

    I’ll second Aron’s statement, I learn very practical stuff from your posts.

  5. Domenclature.com

    The best blog for all levels in domaining.
    Empirical. Facts in full.

  6. Francois

    Like always, nice post, and thanks for the reference Eric.

    Our stats at eCOP.com shows that ~40% of all seller financing deals are stopped before the sale be completed.

    If you are curious how much a seller financing escrow deal costs visit:
    https://www.ecop.com/rates/

  7. Shane

    I agree with everyone else. You’re also one of my favorite reads. Ironically your posts are great BECAUSE you don’t write often. Can save it for the good stuff

    1. Eric Borgos Post author

      Yes, I agree with that. I don’t have a set schedule for making blog postings, I just make one whenever something interesting happens or I have an urge to write. If I blog too often, I might run out of good things to talk about.

  8. Chris Ulrich

    Great tips. I hadn’t thought about this approach, and the fact that you get something up front really compensates you more thank you’d make on parking. Brilliant.

  9. Luke

    Eric,

    Thanks for another great post.

    I always enjoy reading your blog and I particularly appreciate how open you are about your experiences.

    Cheers,

    Luke

  10. Ivan

    If platforms like DNS od SEDO continue to boycott leasing of course prospects wil be not attracted…
    Speak with them. If they don’t want listen you, bloggers, start to write EVERY DAY ABOUT THIS ISSUE on ALL your blogs.
    THERE IS NO OTHER WAY.
    IT’S A WAR.
    AND LEASING IS A NUCLEAR BOMB FOR GOOGLE.
    MOUNTAIN VIEW WILL BE DEVASTED if DNS releases a leasing bomb or SEDO does it. There would be 1/3 of survivors at their googleplex after few years from the attack.

  11. George in Miami

    Thank you for posting really helpful for domainers or anyone else for that matter.
    I’ve one question I consider rather algid for a buyer when signing the contract.

    In addition to first and last name, what other info you require from the buyer.
    Anyhow, I got my own answer before finishing writing the sentence.

    Who cares! If the buyer does something not stipulated in the contract I may cancel it any time.

    However, let me know if it’s possible, how do you manage that issue.
    I certainly would appreciate your comment.

    Thank you.

    1. Eric Borgos Post author

      I actually have address, phone #, and email address on the bottom of the contract also under the signature area, but when I copied it from Word to my blog the formatting got all messed up so I deleted those lines at the bottom. You should add them again though. In response to your question, I have never had a situation where I had to cancel a contract, other than when they don’t pay, but it would be good to add more language into the contract about that.

      1. Eric Borgos Post author

        Another possible worry is what happens if I get hit with a UDRP trademark lawsuit where somebody tries to take the domain. When I have the domain parked, this is less likely, but as soon as somebody (the buyer) starts using it, they might be violating an existing trademark if they use it for something similar to the trademark holder.

  12. George in Miami

    Thank you, for your quick and good response.

  13. Joseph Petrson

    Great, thorough article with no spin! Thanks for sharing.

    I’ve set up a couple of similar transactions at Ecop as well. In both cases, the person ended up paying for the domain in full almost as soon as the financing transaction was initiated. So I have yet to go through the full process with a buyer.

    Buyers are surprisingly reluctant to pay over time. Even though I offer that option in most cases, most people either buy directly or vanish. To me that seems strange, since I like the idea of paying over time as a buyer myself. In fact, I’ve approached domain owners offering to finance my own purchases and been turned down by them too! In one case, I offered a 12-month payment plan to the seller. He declined, and a year later I wrote to him once again just to remind him that he could have collected 100% of his asking price by then had he agreed. Did I buy at that time? Nope.

  14. Francois

    One of the errors domain owners tend to do is increase sale price when offering a payment plan. And does not work! When the buyer estimates he will overpay a name he does not buy even if you suggest him to pay the domain within 10 years!
    Seller financing must be seen more as a way to facilite payment more than a selling argument.

    1. Eric Borgos Post author

      Yes, I never promote that I offer selling financing. and hardly anybody ever asks for it. I use it as a way to save a deal that was not going to happen any other way. Just like most people would not buy a car at a car dealership if they could only pay in cash, offering financing stops them from leaving and closes the sale right away.

  15. John Humphrey

    Great post Eric, Thank You.
    I agree that $10k was probably more than you might have expected for Heels.net, and so a payment plan makes sense. But what if you’d settled on a $5k price/plan and were subsequently contacted by someone else offering $10k. What would you do in a situation like that?

    1. Eric Borgos Post author

      If another buyer contacts me, I usually just forward it to the person I made the payment plan with, unless I can tell the person is not using the domain and probably won’t end up paying me. One time this happened was for Healthstore.com, where the person leasing it from me had paid $10,000 down, and many months later I had another buyer, so I paid the person leasing it from me $7500 to buy out their lease. My final sales price was less with the new buyer than it would have been with the person I was leasing it to, but I am pretty sure the person I was leasing it to would not have ended up paying the balance, so at least I got a sale out of it.

  16. Patchesoft.com

    Another great article. On bigger domain sales, would you make the down payment a lot higher? For example, $1,000 seems quite pitiful if you were financing a domain that costs $80,000 and the buyer pulls out at the last minute.

    1. Eric Borgos Post author

      Usually I try to get at least 10% down. I had one $80,000 sale (though a broker) where the broker arranged for it to be paid in 3 payments over 3 years with around $30,000 down. On a big domain, I would want a higher down payment because big domains are much more marketable, so tying it up for several years causes me to lose other potential buyers if the financed deal ends up not closing. With a domain like heels.net, it is not likely I would have had any other buyers over the 2 years, so the down payment amount does not really matter that much to me. In fact, I would probably have taken a $100 down payment on heels.net if needed, because any financing type deal I make on a lower quality domain makes it much more likely I am going to sell the domain. I would estimate normally there was a 5% chance at most I was going to sell heels.net over those 2 years. But, by doing that financing deal instead of waiting for a cash deal, I was able to raise that chance to 50/50.

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