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.