Apartments and Rentals

I'm looking at rentals in SL here and I'm seeing ridiculously high prims with extremely low rental fees and wondering how people are profiting from this if they really even are.

For example; $L125 per week for 150 prims and I've seen it much higher like $L250 for 500 prims.

No matter how I do the math I see a loss?

Here's my calculations if they are correct.
117 prims on a 512sqm lot costs aprox. $.39 or $L125 if your at the $195.00 tier. Using this equation I can't see how people are doing it? What am I missing here?

Perhaps the mainland rental market is in a downturn, or even collapsing. I don't know this to be the case. But if it were, it would be logical that landlords would undercut eachother to get occupancy rates back up. A small loss would sure be better than a total loss.

Well, you are quite correct in your calculations, and many rental operators do operate at a loss in hopes to attract business.

I guess those sim owners just don't mind losing money, or haven't really thought through it when they made the decision to get a sim. The result is either they keep losing money and will have to use other cashflow to cover it, or the sim closes, and that happens quite often too.

There are lots of places that are operating at a loss and I can't figure out why either.

I do have to say though that if you offer quality rentals (good houses and great service) you don't have to operate at a loss.

My budding rental company fills vacant houses usually in less than 24 hours and we are certainly not opperating at a loss on any of our properties. So while there seem to be some rentals who may want to stay full, there seem to be plenty of people looking for good quality rentals.

Fascinating. Perhaps the problem leading to the undercutting is not so much a problem with the market, but with marketING.

If you own a large parcel of land all in one sim, and a substantial part of that land is devoted to your own residence for your own pleasure, you might have a considerable amount of land that is simply protecting your view, and more prims than you actually need for your own use.

For example, you might own 1024 square meters of underwater land that you simply want to keep open because your house is on the shore and you want to be able to look out on open water. Thus you might have 234 prims you don't really need.

So you might choose to rent out some of your property and allocate some extra prims to that property at a price that a straight calculation would suggest is not profitable. But getting some money for those extra prims is better than getting no money at all, and you end up enjoying your view and paying for some of your tier with proceeds from your tenants.

If you're in SL because it's a hobby and not because it's a business, you might just want to minimize your expenses, not necessarily make a profit.

Some operate at a loss because they're playing a game. Second Life allows them to them play landlord baron extraordinaire just as WoW provides them an opportunity to play orc warrior extraordinaire, for a monthly fee. Everybody is not here to MAKE MONEY. In fact, I venture to say that most residents are perfectly comfortable paying a monthly fee to play the game of living a second life without a single thought for profit.

Rental fees, in those cases, serve two purposes. One is to offset the cost of owning so much tier. There's a vast difference between that attitude and "OMGZGOTTOMAKEMONEYFORVOLVOPAYMENTNOWNOWNOW."

The other is to ensure that people are still using the resource. Jeska claims that Help Island has greatly improved new resident retention over the past few months, but we still have a lot of turnover and landlords get stuck with "rented" areas that noone is actually using without a clear contract. Rent payments themselves provide a clear timeframe for them to know that the resource is abandoned.

You're assuming that everyone is being scrupulous about not offering more prims than they can supply.

Let's say you take a 4096, with 936 prims. Let's say you create 10 apartments and give them 100 prims each. If all 10 apartments are filled your renters are probably going to be able to rez an average of 80 prims each (after allowing for the prims you're using in the apartments themselves). But usually you're going to have vacancies, and a lot of your renters aren't going to get anywhere near the limits, so you'll probably get away with it.

Overbooking is so common in RL that this is probably not even going to cause a big problem if you ARE caught.

Are you taking into account the fact that the landlord most likely has all his tier assigned to groups which provides for an extra 10% of free sqr/m for the same cost of tier?

Also some landlords provide a discount if you contribute your premium account tier to the group as well.


Between the landlord own tier, which is likely to be several regions worth, as well as a region or two of additional contributed tier from renters -- and that 10% bonus could get quite significant.

The rental company could then run some regions as loss-leaders to aquire loyal customers that will later move up into the higher priced rentals, which are profitable.

Wow, I've never replied to my own post before. I just received a somewhat nutty IM in-world from someone who was under the impression that I was trying to indicate that the mainland rental market WAS, in fact, collapsing. This isn't the case, so I want to post a follow-up, so that this person understands that this isn't the case.

I had thought that I'd made it perfectly clear that I didn't have a clue at all why these people were pricing rentals at a loss. I was simply throwing one theory out there, in an effort to get the thread going and stimulate discussion on the topic. There is GOOD NEWS for the mainland rental market, though!

The person who IMed me, under the impression that I was attempting to have a negative impact on the rental market and sell private islands, also happens to have a whole lot of mainland rentals. This person informs me that the market is in fact booming, and in spite of raising prices to record levels, this business has still had a record month in the land leasing business!

So there we have it, straight from the source, mainland rentals are doing very well well. It is also interesting to note that raising prices to compensate for devaluation of currency, at least in this case, has caused a POSITIVE rather than NEGATIVE impact on customer acquisition. What's interesting here, though, is that if the big guys are RAISING prices to preserve the value of their businesses, why are others having to LOWER their prices below even the profitibility point to compete?

I suspect that either these people aren't in business to make a profit at all, OR, they would do well to study the marketing methodology of the big player in the mainland rental market and implement similar new tennant acquisition strategies.

Because old FIC Rental Barons are willing to sacrifice democratic access to rental business opportunities in favour of increasing their own empires. New residents stuggle to make ends meet while the FRBs spend days at a time on the phone chatting with Philip and other Lindens.

What do you mean, exactly? Could you expand on this a bit?

I have no idea what it means. I was just reverberating things that might be said by someone who was "under the impression that I [Shaun] was attempting to have a negative impact on the rental market and sell private islands, also happens to have a whole lot of mainland rentals."

ahem

Oh.

I see places that appear to be using residential property as a way of driving retail traffic. The nearby malls charge higher rates than the apartments (so the sim on a whole can make a profit) and have low prim limits (vendors don't take many prims, fortunately) so extras are available for the apartments. Such apartment towers are usually filled with new players who eventually get tired of the lack of privacy and move out, so you have a steady stream of new customers to keep the mall prosperous.