Lease to Own holds back growth for many investors. (4.Viewing)

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Something I've been thinking about for a while: LTOs hold back growth for many investors.

Yes, there are advantages of enabling Lease To Own... data shows around 12-20% increase in sell through rates (STR) depending on term length. Average selling prices (ASP) can also be 20-40% higher.

And there's the obvious downside too... roughly 20%-30% of LTO sales will default/cancel.

But here's the biggest issue for me... the loss of compounding.

You slow down your cashflow - reducing the ability to reinvest and compound that capital over time. An LTO will also reduce your spending power in the future as domain values increase. Think about the purchasing power of $1000 in today's auctions compared to two or three years ago.

Unless you have more money than you can spend or you're not reinvesting a high percentage of your profits, you will be losing ROI with LTOs over the long run.

The gain in STR is easily cancelled out by the defaults. And the increase in ASP is reduced by the additional surcharge fees (which go as high as 50%). You could potentially mitigate cancellations with larger upfront deposits, but this will also decrease STR gains.

If your portfolio ROI is higher than 20%, you could probably outpace the benefits of LTOs by having the money up front, even if the ASP is 10-20% less. Many investors early in their journey will be above 100-150% average annual yield. Other investors with more established portfolios might still be somewhere around 20-40% ROI on their portfolios.

I still like LTOs as a negotiation tool, rather than being offered upfront. They can be an essential element for making deals happen, when otherwise they wouldn't. But offering LTOs to everyone means that it's us, the investors, who end up financing at least half of the LTO buyers - buyers who would have otherwise paid in one go. And this comes at our expense, in the form of lost compounding.

Like anything in domaining, the right choice depends on your strategy, the characteristics of your portfolio and the types of names that you sell. So there's no perfect answer here - it's just me thinking out loud.
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I see both sides of the coin on this one, personally I hate doing lease to own but I won't let one walk away because of it.
 
I like it as a negotiation tool. If an outright sale is dead in the water based on price, then you can offer the payment plan rather than negotiating the price.

I just had one where a buyer said he didn't need a payment plan, so I said well if you don't need financing, I guess that means you can afford the price. But some people just feel the need to negotiate something to move forward. He argued that since he didn't need the payment plan that he should get a cash discount. I gave him 15% off and he took it. In the end, I got a cash deal at a very modest price negotiation but I feel like going through the whole payment plan exercise helped make that happen.

And honestly I don't mind the payment plans because its spreads out the cash flow and smooths out the ups and downs of domain sales. And one point I didn't see mentioned in that post is that when an LTO defaults, you keep the domain and don't have to replace it in your inventory like you would if you had completed the sale. So it was some free cash coming in for whatever payments you did receive. So use an LTO as a negotiation when a sale falls apart or isn't likely to happen. If you don't make it an upfront option, it can't really kill a cash deal, it'll only help make a sale that might not otherwise have happened.
 
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