Doing the Math

Hi!

After reading a lot about 'land barons' (baronesses *s*) and how people can make money through SL (real money that is) I have been trying to find out how exactly you can make money in SL with land.

My first step took me to the land fees page.

There it says one will pay US$195.00/month for 65,536 sqm of land.

Now if you add the premium membership fee that is 207.95 $.

A 'normal user' will pay 14.95$ per month for 1024 sqm land that is 512 with the normal premium fee and 5$ additional per month for the extra 512 sqm.

Now, if you would cut the 65,536 sqm land into 64 parcells you could sell each of them for 6$ per month (less than half what you normally pay for it buying 1024 directly) and make
176.05 $ (US not L) money per month.

So... if you buy 20 sims ( I assume that thos 65,536 sqm are a sim) and can sell of each 1024 'unit' for 6$ per month then you can make 3530 $ after paying off the land fees.

Thats a quite decent monthly income isn't it?

I wonder if I did my math correctly, its one thing I really can't do well, and its 3am in addition to that *g*.

But if those figures really are correct, and 6$ per month for 1024 sqm is archievable... I think should really think about buying me 20 sims and renting them out *s*


Dalea

Mostly right.

20 sims = 20,000 USD investment.

you can't assume a 100% rented sim, 50-60% might be more accurate.

In theory, you should probably aim for break even on the SIMs and look for other avenues of revenue, such as malls / services / etc.



Actually, 1024 m2 costs you 7$ USD per month. LL pays you 2000 l$ per month for the 10$ USD monthly fee which is 8$ USD. So, 2$ are going towards your 512 tier. Another 2$ is going towards your other 512 tier to get the 1024, so you're paying SL 7$ / month.

You could probably undercut them by a bit, I work it out to be $6.50 per month is a good rate to charge for 1024 or $422.50 per month or $222 profit per sim. At 50% rental you probably can make about 100$ profit per sim. At 20 sims that's about 2000 / month, which is a reasonable investment on your 20K but it will still take awhile to make that up.

The other problem, of course, if multiple people do this you'll end up competing for the same customers and a 20% rental rate may become more likely.

So, in the end that means, a) over time one will make less and less profit as more and more people rent out land and b) the die is already cast because of the few people who already are established and who own enough land between them to sate the 'market' ?

If one made 2000 $ per month out of it then after 10 months the original investment would be paid off no?

The question is, how long would on be able to make money with it?
Normally an online game is lucky if it keeps up for 3 or more years no?
I assume that before people will actually completely stop playing a game they will cut down on what they pay for it, if possible, so stop renting/owning land and such.

Would it maybe even make more sense to forget renting out land and isntead buy some land and just run a big mall there? Rent out automated shops to sellers and host items for buyers?


On the other hand, is there some kind of inflation?
If everyone could make a few hundred $ per month then the value of $L should rapidly decline no?


I think all of this could go under 'Making the Virtual Reality more Real', now you can even set up shop in a game and make money to keep playing it *s*

That sounds like the perfect business as the player makes money and the game developer does, at least as long as only a minority is doing it. As soon as you have more people getting money out of SL than putting money in it will really hurt the 'currency' and the developer no?

*has really not much of an idea of how the businessworld runs*

Dalea

Well, I speak as someone who has actually bought sims and actually done this, so let me explain what is "off" about your calculations.

The first thing to realize about virtual estate is that there are tremendous risks involved, it is completely unstable and unpredictable, most of what can go wrong does go wrong, and just when you think it can't get worse, it does. Imagine spending $1501 on the auction on a whole sim, knowing you had only days in a window open to develop it to stay ahead of the curve of other new sims coming online (plus your tier bill in 30 days) -- and the telehub to your sim area is completely closed and broken for 3 days, so that neither you nor your builders can fly to this sim to work on it. That's the kind of thing that was routine for me, and is routine for anyone in this business. Add another 3 days when the game was down and people couldn't log-in. Or the random sim crashes just when you are putting out a house, so it gets lost somewhere.



This isn't rational. The problem is that out of that 65k, if you zoom in, you'll see Governor Linden has some of it -- maybe in the water or by the roads. He might have taken as much as 4-5k out of it. You don't really have the full 65k. Secondly, people don't want to live in stripped-out cookie-cutter parcels of only 1024. They aren't little profit centers you can move around like markers on a board, they're people. They're going to need at least 2048, and probably 2560 or 4096, many of them, because they need the larger, two-storey houses, with tripled or quadruple the prims in a basic 100-200 prim house, for building/decorating. 2048 gives you just 468 prims. 4096 gives you just 967 prims, and they go fast. If you do lay out 1024s, you'll need trees and commons separating them to make them bearable.

You also will need some kind of commons or trees or square or pond or *something* that breaks up that unrelieved tract-house feel for the whole sim. People will not move into a sim that looks like an unrelieved landscape like that. So you need to count on Governor Linden, and yourself footing the bill for anywhere form 5000-10000 m2 on that sim just to make it look good enough to sell.

Then you will be unable to sell it within 30 days. I was aiming for 60 days in Ravenglass and I came in just under the wire. The reason I couldn't sell as quickly as I liked was in part due to waiting for custom houses to be built, and also it was my first sim and I had to figure out how to do advertising.

There is almost 0 capacity for advertising in this game except for 1) in-game land sales list, a huge clutter many players don't even pull down because it is slow-loading and confusing; 2) the forums classifieds, which only 5-10 percent of players read; 3) a for-sale sign and a brown-land for-sale status in-world that they will see while flying around or pressing the "land for sale" tab on the map.

Top land barons add to their costs by maintaining websites, especially interactive, frequently updated websites with the land for sale available 24/7.

Your tier bill is looming, and you don't pay half tier just because you maybe sold half your sim in 15 days instead of 30 or 45. LL bills you for the highest amount of land owned that month. So with half your tier on the $195 monthly bill paid up, but with no land under it, it's off you go to buy on the auction or in-world again to justify keeping all that paid-up tier, and it's off on another race to get that land sold out under the wire. It's a real steeple-chase -- and you must factor that into your costs -- you have no way of knowing *when* your land will sell.

Some land barons have mathematical calculations and formulas they run on spread sheets for this, showing the liklihood of when a land will sell, whether in P or M or near TH etc., and they use that formula of tier payment and time-til-sale to calculate their margins on the auctions.

I think blaze is being too hypothetical about the competition from others and the tap-out rate on this and the 3 months when it will become pointless, etc.

In fact, you're not competing with other players doing the same thing -- most people don't buy sims. Lately, they buy private islands and deed them -- they can just control ugly builds, griefing, and view corridors better.

Rather, you're competing with Linden Labs itself, which just keeps rolling out sims, dag nab it. Why should a new player come in and settle on your sim, with perhaps 6 other avs already eating up the 1024s you laid out, and eating up the resources on that sim and already beginning to lag it? Instead, he'll follow the grand SL illusion and strike out for the high country, and buy what he thinks is a 2048 in pristine gorgeous wilderness. You can't stop people's illusions about those "pristine wildernesses" -- the Lindens make them very enticing. You can try to explain that the wilderness will be filled with crap the next week, but he won't believe it...

...but yet some get it, which explains why I was able to sell out the mainland of my sim, and eventually very judiciously sold out some of the commons just for the prims of longer-term residents who agreed to keep trees on it and not gut it. Then I put stores and houses to rent on some of it to pay the tier on the rest of the commons.

This formula worked out pretty good but there's the issue of vacancy, of course, and turnover. After I learned a lot doing this sim, I went on to buy half and quarter sims -- I didn't want to take on the huge responsibility of a whole sim again, and wanted to be able to sell any thing I couldn't manage to develop, or which didn't perform well.

I tried to buy in the four neighbouring sims, because really, one sim is never enough in terms of consideration of lag and views. You really need to aim for 4. 16 wouldn't be too many ROFL. But seriously, with 4, you have more than enough to do, trying to handle people's parceling requests, or customization of their rentals, or whatever. It's a lot more work than you think.

Some land barons just chop up land they buy, put it to sale, and forget about it until they log in on that alt and takes its money and cash it out. That's why I'm not a land baron. I find that not only boring and dull, but just kind of inconsiderate of the community. I'd rather try to work at sims, trying to make them have a mixture of residential, low-impact business, recreational, woods/common, waterways open for boating, etc. I'm hoping that while there are losses in that kind of more careful approach it might pay off better for business down the road.

As Anshe has explained time and again, only volume works for making any kind of RL salary of the SL land business. But you can't get yourself a guaranteed volume of entire sims. Entire sims, available just "as is" as a whole sim, are not auctioned off frequently. You can't just go in on the auction and bid and buy 20 or even 6 in a month. blaze, if you ever studied the actual auctions or bid on them, you'd know it is impossible to plan for a 20-sim purchase of sims on the mainland.

What happens is that sims are apportioned to a quarter or an eight or whatever by the Lindens. Maybe they want to generate more income on their auction or keep the few high-end land barons off balance, but it is hard to go on the auction and buy all 4 or 8 pieces of a chopped up sim.

This is why Ryan Linden wrote a letter last month to auction bidders floating the idea of producing more whole, non-chopped sims for people to develop and sell, possibly as whole residential communities on those single sims. The mere announcement of the idea sunk the land market the next day to $2/meter because it implied that the Lindens might be land-glutting even more than they already do, by having loads of single sims up for bid starting at $980, that some people would succeed in getting for as low as $982 or $1002 -- in other words, they'd be on par with private islands. Currently whole sims can go for $1200-$1600, not much more than that, and sometimes you do see some going for a whole lot less.

I have a mixture of home rentals, land sales, and mall rentals because I find you need to do all kinds of activities like this to keep a cash flow. But there are a lot of expenses and it is hard to get ahead.

The other day a new player, the alt of another new account LOL, landed on one of my malls and started asking loads of questions about how it was renting, how you rent malls out, how the traffic works, etc. Then she asked to buy it. I said it wasn't for sale. She then airly questioned me "how do you market this" -- implying that if she bought it, she could do better. Well, the world is full of land, she can buy any piece of land, commission a builder, and do her thing, without buying my mall, my hard-won customers, and my traffic lol. But her question is indeed the one to ask: how can you market a mall? And being in a fortune 500 company and being a hot-shot marketing exec in RL will not guarantee you a seat at the SL table in this business.

The point is, my mall is half rented. I think it's a miracle I even have it partly rented, given that I'm right next to the mall owned by Anshe Chung (and was near malls owned by other older players with more capital to work the mall system). Obviously, Anshe and others have considerably more resources to throw at running a mall, and charge way more than I do for the spaces on it, so makes more of a profit to enable them to keep buying more scarce and expensive mall land near telehubs. To break into this business, I can only see that I have to compete price-wise and per-prim and be prepared to focus on getting a few right before attempting volume.

And I'd have to say that the idea that you can get rich quick on the malls, if you are not one of the 3-4 existing top mall barons who have bought up most of the telehub land, is completely fallacious. I often stumble across a touching scene in world. Some entrepreneurial young newb has taken his 512, and maybe bought another 3 512s from his neighbouring newbs, probably for a song, and placed a mall on it in the middle of nowhere. The mall was calculated down to the wire to pay tier and make money! It has an ugly box, and 12 ugly rentomatics on it.

And there it sits, in the wilderness, gathering dust, because the newb didn't realize that no one comes to malls unless they are near telehubs, or at least are established enough to have high-end boutique-type stores anchoring them.

What many people also fail to realize about the mall business, because they haven't actually hunkered down and done it, is that the way the large land barons succeed is by having their spam lists. They have their lists of existing customers, all of whom were forced to join a merchants' group to keep their prims glued on the land they are renting, and not have them autoreturned. The land baron can then get on the list and spam it daily with notices like "Just opening up in Clunn...lots of space now in Wixom...come get it while it's hot!" etc. Then there is literally a stampede as all those vendors, who rely heavily on telehubs to sell their wares, hurry to grab the scarce space (sometimes pretending, of course, that they don't, and that they just sell a few items to friends from their high-end boutiques LOL). Some of the long-term customers will have already handed over their pre-fab stores and signs to the land baron to place out the minute they get their hands on telehub land at the auction. So before any one can say "Jack Rabbit," the mall space is locked and loaded with existing customers of that land baron.

Any independent with a little mall maybe 100 m instead of 20 meters from a TH is left to fight for the scraps. The scraps are going to come from the spillover of the spam list who got there too late for the first rush. Or just general fly-bys. Or the few customers that he himself may have built up on his own spam list. To give you an idea, after four months of steadily pushing this daily and trying to work all the in-world tools, I now have a short list of regular customers who might consider coming to each one of my new telehub malls. But it is an extremely flightly and unpredictable business and I can only compete by lowering my prices to either break-even or loss levels.

How, indeed, will you market these properties? I have tried all kinds of ways -- holding events of various kinds, like games and discussions that brings some fly-in traffic. Or offering land raffles. Or opening offices myself on that expensive mall-baron telehub land and putting landmarks to my cheaper vending space inside. Or putting objects for sale on SLExhange.com which contain ads inside that some people then follow up on. Or just chatting with people here and there, or getting the odd IM. I'm now at the point where I get the requests for rentals daily, but it isn't something you can count on, and you only get it by showing up daily in the game.

In fact, I've noticed from the work of another very successful independent at one location adjacent to, but not right on the telehub, that he succeeds by being on the premises, available almost all the time he is logged into the game. The single greatest factor in renting out land, especially mall vending spaces, is being visibly on the premises, available to serve, as much as possible. If not physically on the premises, at least available to TP at a moment's notice.

So the notion that you just put out a cookie-cutter inworld, set out some rentomatics, tell people to join a group, then spam the group with your lather, rinse, repeat can only go so far. People are human beings, and they want care. They don't want you to just make money off them, they want you to wait on them -- the customer service in this business is ENDLESS.

What other ways to market this space? Well, with the anti-business and anti-land baron climate in the game, boy, will you have a tough row to hoe. Example: you cannot hold an event specifically about demonstrating a new mall building and showing its features and renting it out -- real estate events are not allowed on the events list due to the commercial allergies of the old guard and some of the Lindens. They say they may fix this up in a later patch, but it's shut out now.

And God forbid that you send out any mass mailings or spam of any kind. This is strictly discouraged and you'll find a host of old players, especially among the loyal guard of the existing mall-baron insiders' spam lists, who will hotly and vehemently protest even your innocent query to them to the Lindens. You'll have a Linden all over you like white on rice telling you that it is a violation of the TOS to send out solicitations. Thus, if you so much as write to another player that you knew slightly that you were sorry to see them get kicked out of another person's mall, and you'd like to interest them in your mall, you run the risk they will slap you with an abuse-report.

Clubs seem to be routinely exempted from this TOS policing. I get loads of club and dance announcement daily. Nobody ever seems to AR that spam. Because the clubbers rule that roost and take care of their own. Whereas the designers/merchants/vendors seem to be a more vindictive bunch.

People don't have a tolerance for spam. They get hugely angry about it. And the Lindens respond by banning this type of commercial mailing. Yet with no in-game classifieds list, with no ability to market through mass mailing even of the most low-impact and sedate type, you're left with the almost nil availability even to put up a billboard (unless you go with Meta-adverse which isn't so easy to use, is down sometimes, and also requires land to put the signs on). Some swear by Meta-adverse and other types of spinning billboards they get going here and there. But I promise you, it's a bleak landscape. If you are not a land baron who has bought up all the land immediately adjacent to a telehub and you don't have prefabs and pre-orders to spit out within 4-8 hours of a telehub's appearance in the world, don't count on making money from malls.

So why do I bother? Because I'm still confident that if you work hard, and steadily increase your capacity and your visibility, you will mange to have some niche in this market, which I believe is now increasingly diversifying with more players in it.

If your attitude is a more cynical and shrewd -- "too many players doing this will make it impossible for me to make money as a near-monopolist" -- then I can't really advise this gambit for you -- for me, it's more about seeing whether you can make civilizations that work on the mainland open grids, such that they might replicate.

Prokofy, this thread is not about you. Dalea never once mentioned your name, or auctions, or mainland.


Dalea, if you can afford to purchase a private sim or two, yes can make a profit by sub-leasing it to others.

Can everyone make a profit by doing this? Well if everyone had their own private sim, who is left to rent it? So, no. Not everyone can do this.

I put down my experience for the benefit of anyone who'd like to draw from it. There are plenty of other readers here besides you and your subjects, Queenie.



There's a limit to how much people will buy land they don't truly own and control and pay tier on themselves to LL, we've seen this in other threads.



Yeah, the world isn't just full of your customer/profit centers, but of people who act freely and unpredictably.

Well actually, after reading prokofy and teh otehrs repsonses I am wondering if the economy in SL isn't going downhill. It does seem to mirror what happens in r/l if I understood it correctly, meaning that all small businesses are getting bought up by big ones or put out of business *s*


Does that mean in the end every market (malls, land etc.) will only have 4 or 5 people who generate income and everyone else who tries will go bankrupt? *s*

It also reminds me a bit of MCDonalds, unless you are MCDonalds you can only sell burgers by having a MCDonalds 'rented' from MCDonalds....

Dalea


p.s.
My whole reasoning for opening this thread is, if you spend several hours in game why not make a living with it?

I wouldnt get involved in any island land to sell into plots until the changes are made in the Land For Sale..........
this is from yesterdays Town Hall meeting
"Robin Linden: Gwyneth Llewelyn: Define land sales and explain why island parcels are not considered land sales by LL
Robin Linden: A land sale occurs when the person making the purchase has not only all the rights of a landowner,
Robin Linden: but also can not be removed from the parcel except by selling it or by leaving Second Life.
Robin Linden: Island parcels are 'sold' in a way that transfers the rights of landownership except in one key area.
Robin Linden: The island owner retains the right to reclaim the land at any time."

Mainland is so passe

Yes, it is very easy become rich!

But I know one even better way. Lets do more math

In the area where I live, hotel rooms cost 100 US$ per day or more. Each room is 25sqm. To buy new building you pay 2000 US$ per sqm, so each hotel room cost 50000 US$.

So in one year one hotel room make 36500 US$. This mean if now I invest in one hotel, it only take 18 month to get all my investment back. Then I just sit and watch people pay for my hotel rooms and earn 36500 US$ per year until rest of my life! Just collect money!

Damn, why don't I do this? Of course because I don't have the US$ (just HAD to spend it on new Porsche car). I sure would if I had the money! This is so freaking unfair how all the rich people can just put money into hotel and get richer and richer without work.

Hmmm, wait, anybody working in hotel? Or anyone who has heared about hotels go bancrupt? So you understand that this is just nonsense what I wrote up there? Why is that?

Some reasons:

o No hotel is ever 100% rented out. It just isn't, never.

o There are staff costs

o There are shared areas in each hotel that cost money but are not rented out as "rooms"

o There are transaction costs

o There are costs related to fraud, crime and violence

o There are cost for construction or renovation, advertising and so on

So lets look at the "sim hotel" in Second Life:

The fully rented out 1024sqm per plot sim with 64 residents will never exist. Before even half populated it will be killed by lag and nobody moves in. Even without this you have fluctuation and the realities of the market.

More realistic is sims with 4096sqm plots that are 80% occupied. That is realistic assumption for one successful sim. I won't even go into detail of less successful sims. Subtracting PayPal and credit card fee you get 300$ per month. Then pay tier fee and have 100$ left. Then pay share of tier fee for common use sims like park or sandbox and less than 80$ left. Then talk about staff cost, event sponsoring PayPal chargebacks and all this cost that pile up and it is less than 50$. And, yes, we are talking about successful and mostly populated sims. For all of Ansheland, as one example, in its current state that would be 900$ per month if it would be 80% occupied which it currently is not. If in one year it grows to 100 sims and if it get mostly sold and rented it may slowly approach real life salary: for the job of create and manage 100 (!) sims, risking 100000 US$ investment and in the best case scenario.

But chance is in middle of all this Linden Lab rolls out next cool thing and suddenly your hotel is empty. Or you end up renovating every few months. Or some rich hobbyists decide put up plenty of sims and rent at cost or below cost. Just look at malls in Second Life... it is cutthroat market and only the most agile earn money because so many do it for fun and even taking loss.

stop to burst peoples bubbles in boxes!

Anshe, if my post sounded in any way belitteling to the effort you and others make to gain that money in SL I am sorry.

*g* I really had no idea about what is involved in making money in SL. And there is that, that there are lots of writings about how you and other people are very successful in making such money. Now that could possibly only be because of your and otehrs amazing business skills, but I had absolutely no idea how making money in SL worked at all (beside that you can design stuff and sell it to gain some) so I just wanted to know what goes on 'behind the scene'.

I did not mean to hit a nerve, it was just a topic of interest for me.



Dalea

I can attest to the fact that land barony is not the piece of cake that it sounds like. Anshe has had land for sale right next to me for as long as I can remember. That's one heck of a lot of money tied up in tier payments. Frankly, I dont know why she hasnt just released it to cut her losses. Snow is so unpopular...

No worries, Dalea. I understood your post as raising one question that others raised before and decided to share some of my numbers to allow people make business plan based on more realistic expectations.

Btw, this month I lost money, mainly because of malls and mainland situation. Ouch! Yes, this happens. I just hope next months will be better again