About the business of Real Estate

Hello,

I was thinking about some issue related to the Real Estate business that i dont understand.

A lot of times i read here that someone was renting a plot and suddenly the estate owner sold the island, and the new owner kicked off all the tenants to start a new business. I see that still in SL is not popular the concept of "buy a business". It has no sense for me destroy a good business and start a new one that you dont have any idea if it will work.

If i buy an island to someone, and the island is full of tenants that pay at time the tier and i'm making money with that, then why the heck should i destroy all that? It's like buy a company in RL. If the business is ok and i receive good profits, there's no reason to destroy it.

The unique "objectives" reasons that i think are ok to destroy the business of the former owner are:

1. The current system is not profitable.
2. I have customers ready to pay more money than the currents.
3. I have an extraordinary project that will give me more money, yeah i'm sure.

If it's not that, what can be? ok i accept that if some rich guy/girl want an island to buy his/her own palace to share it only with the family or friends it's ok. But what those who kicked everyone and put a horrible mall?

I remember that Donald Trump in one of his books said something like: it's better get a property, create value and receive always the incomes of this than buy cheap and sell expensive. Yeah i know SL is not like RL, but we can learn some lessons of RL to apply in SL right?

Any ideas?

Original owner suffers a financial setback in RL and sets estate for sale. Another person wants to have a private estate just for their own purposes with no intention of running a business.

Price is right, new person buys estate, doesn't want to be a landlord, good bye tenants.

Just one of many potential scenarios. Not that either the original owner or the new owner are bad people. Just that circumstances sometimes work out that way.

Well, usually is someone is selling a sim, that sim is not profitable in its current state. But most of the time, I agree with you. Even if it isn't fully profitable right now, many sims could become profitable with good management and advertizing. It's stupid to throw away tenants without even giving it a second thought.

In many cases, it comes down to a simple lack of communication, or a lack of even trying to communicate.

I remember once I had a lovely home in a sim that I built for a client. He hadn't advertized the sim well, and he had very few tenants. Eventually he sold it.

I was given the impression that the sim was to be completely wiped and reformatted, and that I had no choice but to leave. The former sim owner thought that was what was going to happen, because the new owner didn't say otherwise, and made no effort to ask about current tenants and the like. The former owner was nice enough to refund my land purchase price, and I moved on...

Well, if the new owner had contacted me and discussed their plans, I quite probably would have stayed on with them. They didn't intend to change a thing on the sim itself. The only thing I didn't like about what eventually happened to the sim was that it got moved into the middle of his other sims, so I would have lost a lot of my costal view. But I would have still had a nice beach nearby, and water around the sim edges. I could have lived with that.

Moral: When you buy a sim, consider that the current tenants may be a valuable asset. Work with them, and don't discard them.

maybe someone wants the sim for non-residential or non-business reasons. like a park or an art project or an educational facility.

It's because a region or two is *not* a business. Not even five. Probably not even ten.

Here's why.

A single private island, ridiculously popular, rented to the gills and full with a waiting list, makes... if you are *very* lucky, 200 bucks a month.

And you are gonna easily put in 20 hours a week making that 200 a month. It is a 2.5 USD an hour 'job' if you refuse to think of it as a hobby.

That's the upper income level, too. Say it's only 50% rented out. Well, you are prolly making maybe 250 USD with expenses of 295 USD a month.

So now you are working just as hard (gotta get those lots rented!!!) and losing fifty bucks a month.

Having fun yet?

There are a lot of small operations that are stable, merely because it's a hobby and fun socialising for someone who could easily pay 100/mo in an emergency.

But the instant there's drama on a small region, or it's done 'for the money' - watch out. It is utterly, ridiculously, insanely not worth it.

* * * * *

I see this sort of thing a lot - usually the tipping point is at about 60 to 90 days. Everyone loves a new region. People come around, it's something to do, something to talk about.

- By 60 days, the short timers are off to their next big, short term thing. Occupancy drops, some new people move in. Maybe.

- By 60 days, the longtimers have figured out who, precisely, they absolutely cannot stand among the people in the region. Some are very vocal about it.

- By 120 days three residents typically decide they will make an ultimatum to the region owner: throw out (insert outcast name here) or we are going to move out and stick you with (X USD) tier. In some classier cases, the residents don't actually threaten, but it's obvious enough. No telling how this unfolds.

- By 180 days, the region owner realises that a few longterm residents have used him as their own personal concierge service for all manner of issues technical and social. And are continuing to do so in a most un-fun way, four hours a week on average. Region owner calculates time and costs -vs- the small parcels held, and realises that this horrifically un-fun service is being provided at 43 cents an hour.

* * * * *

So that's kinda how it goes.

Look for two kinds of region owner: the big ones for whom it's worth it financially, and the small ones for whom it's just a passionate hobby, and are 'people' persons.

Failing that, find someone willing to take 20 hours of abuse weekly for 2.5 USD/hour... grin

Dammit, Desmond, why keep imposing reality on us? Isn't this supposed to be a game?

This is *more* true in SL than in RL, in general.

In RL, quality land itself has real value which is likely to go up (simply because population increases but available quality land doesn't -- at least, not much).

In SL, the resource is a sim. The "land" can be moved. Location can matter and have value, but these things can change in a flash. But most importantly:

1) the amount of land increases, and can easily increase faster than the population or market (as it has recently)

2) the actual RL cost of providing sims will continue to fall, if technology costs keep going down like they have in our lifetimes. This means that the cost of obtaining and keeping "land" is likely to fall as well. This is especially true if LL opens up the grid to 3rd-party servers.

The only long-term way to make a profit in real estate in SL is to offer a value-added service, as The Donald recommends. And as Desmond says, you'd better enjoy doing the work because it pays peanuts.

A lot of the situations I have read about on the forums where a new owner reclaims the land from prior occupants is a situation where the people bought the land ownership rights from the original sim owner so it is not exactly like an eviction of a tenant when the land gets taken back by the new sim owner. The new sim owner may understandably want to impose lots of new covenants on the prior occupants such as a no resale or transfer/abandonment only covenant, build restrictions, higher rent if the new owner has a higher VAT, etc. which the prior occupants may not want to follow. Additionally he or she may want to get a sale value as well as rent value from the land as well. All that makes for a potential unwanted headache for the new sim owner and the prior occupants of the sim and he or she might feel it is easier to simply reclaim the land and look to new tenant relationships than to enforce his or her covenants on what are probably upset and possibly defiant occupants.

The person who buys an island isn't under any obligation to the existing tenants. If the scenario you describe happens, it's because the seller was irresponsible and sold to the first bidder, rather than finding someone who would take care of the tenants.

There are many reasons to buy islands; not everybody wants to be a landlord. I've bought a couple islands just for fun... then I bought the rest to pay for the fun ones.

Also, a single fully-populated island is no indication of a given landlord's overall business. A lot of estates I've seen would be in the red if even one of their sims was empty, and that is not a very comfy situation to be in- especially now when so many people appear to finally be packing up and leaving SL for good, or at least cutting their SL expenses until they get their RL books under control. Times like these are making me very happy I'm diversified in SL. I can afford to have several full islands completely empty without having to dip into reserves... not that I hope we ever get to that point!

Not everyone who buys an island in SL has any business sense, either.

That isn't limited to islands. Remember the "i want to start a sl business tell me how to do it tee hee" thread?

That is for sure. If you have to ask how to start a business in SL, you aren't ready!

Lol, very true words from Desmond as one of the little guys I'd have to agree, I'm just under half a sim, and basically I limit my inworld spending to what I can earn in rent, which is just enough, it gives me concierge support, my own sandbox with a few thousand prims to play with, and some nice people to share with as well as some people just purely in it for business, in the smaller plots.
After seeing what can/could happen, I'd have to seriously consider not expanding to a full sim if the opportunity arose for fear of turning SL into work.
Just getting tennats at the moment is hard enough, even at less than "cut yer own throat dibbler" pricing
Also some people were selling land to alts too, so taking a run with the money tennants had paid in lump sums to "buy" their rental plots, but I ddon't know this is that popular anymore with the shortage of buyers.
There really is a mass oversupply of land, and I suspect LL new Bay City may have plots passed in for auction not even the land flippers want.

Desmond I am on here far too much, and I don't make a buck a week, so when I buy an island that $200 US is 196 more than I presently make…

…and it is income!

I just think Desmond wants all the $200 US to himself

Part of the problem is the lack of checks and balances. Any prospective owner should check out how the land lies, too many see "cheap island" and don't take into account their responsibilities. It's outrageous in my opinion to buy an island and kick the residents.

It is the seller's problem. Why should you forego a sweet deal because they have tenants you don't want?

Because I have morals? It's unethical to absolve responsibility, a buyer should pay a price that reflects the value of an island. I would not enter any deal where I am paying the seller to shaft their current tenants.

I have morals too, but I also believe that the responsibility lies with the seller. An island is worth what I'm willing to pay for it, no more, no less. Tenants are not a part of the deal unless one is buying a business.

If you are buying an island you are buying a business, unless the island has no tenants. I would never sell my island and leave my tenants out of pocket. Whether they could stay or not is a different matter, but the idea of me accepting a fee for my island and then taking the money and running repulses me.

My island is worth, second hand value, minus any fees my tenants have already paid me. If I was buying a second hand island the first thing I'd want to see would be outstanding commitments, to not do so is not only bad business, it's unethical.

I agree, the seller has the burden here.

Covenants are so important. They should spell out clearly what will happen in this eventuality. If a covenant does not have a clearly articulated policy for this situation, stay away.

In my opinion.. if you 'sell' parcels in your sim and later you sell the sim you need to treat the parcel owners as just that.. owners! They deserve a percentage of the selling price equivalent to the percentage of the sim they own. UNLESS, you make it very clear in your covenant of the alternative.

.d

The other side of the coin is it would be pretty easy for someone to set up an island with a bunch of alt tennants supposedly returning a good profit then just taking them out at the change over. Or selling a mall with high traffic the same way.
The tennants should be informed and refunded any balance at the time of sale unless it is included in the sale terms.

From that perspective I can understand it, though it will totally transform your experience.

Imagine having to log in constantly.

Forever.

With several IM's in the queue, and when you get 'pounced' on login, well, you gotta figure it out, line 'em up and take care of who you can.

Not to mention checking your notecards from the past 24 hours, which sometimes can be 30 or 40 actionable items in the winter high season, over a weekend. At five minutes each... grin. Busy mode? Don't even think about it. It rejects the notecards you need to get to keep your work prioritised.

Okay, one region isn't near that bad. But it's not all that different from running ten in a lot of ways, especially the 'on call' part.

And that 200 USD per region I mentioned? That's more than I make myself on any of my regions. I was being an optimist for the sake of argument.

Tegg pretty much nailed it. Though ... Tegg, what's this selling land to alts thing? I'm not entirely sure how that (or anything) would be a 'take the money and run' scenario, without blatantly evicting a tenant and then getting stuck with your own tier.

* * * * *

Land oversupply - yeah, I really think there is. But that may have more to do with the season than anything else.

This is about rock-bottom in terms of global online hours, when it comes to computer use.

Anecdotal, yes, but let's just say anyone in the snowcone business can tell the difference between summer and winter.

The people that do really well are the ones that know the underlying reasons for market performance, not the ones that try to 'buy low sell high' and hope they do okay. Who really knows? Nobody can be *sure* that they are right, but a guy like Warren Buffet seems to be more clued in than not.

We are in a synthetic corporate-controlled economy, which means that it's not pure free-market principles. But just realising that is a major leg up.

I'd totally want to be nice to the tenants and keep them. It's hard enough to find good tenants anyway.

An island is just an island. For a buyer, it doesn't have to be a business.

I would never leave my tenants in the lurch either, as I would be inclined to sell the business and not just the land to a person that would be qualified and motivated to keep them.

But the buyer has no protection from an unscrupulous seller. It is not the buyer's fault if the seller doesn't refund any money - tier or otherwise. The buyer has no way to quantify the extent of each transaction, and there is far too much potential for the buyer to be ripped off. Let the seller handle his own contracts.

Bingo! I don't understand why a buyer wouldn't research what they were buying.

Yeah, okay, what research? About Land isn't going to show the purchase price for the land, how much tier has been paid in advance, and what the proportionate balance of the tier is. There is no way to get verifiable data, and you put an impossible burden on the buyer.