Confuzzled - Bad Math or Strategy for SIM auctions

For months, I've watched people buy SIMs then sell off plots of land (sometimes quite significantly large plots of land) for less than my calculations say they bought it for. Is this from bad math skills, or some cunning strategy my merely mortal mind cannot perceive?

Here's how I would do the calculations:

USD buy price x 266 (L$ exchange rate) x 3.5% (Linden surcharge) = $L cost of land

$Lcost of land divided by size of land (65536 sqm) = cost per square meter for new SIM


Thus:

(1000*266*1.035) / 65536 = 4.20
65,536 sqm purchased for $1,000 USD would be $4.20 per sqm

(2501*266*1.035) / 65536 = 10.53
65,536 sqm purchased for $2,501 USD would be $10.53L per sqm

(3001*266*1.035) / 65536 = 12.61
65,536 sqm purchased for $3,001 USD would be $12.61L per sqm


I've heard some SIM buyers don't add on the 3.5% Linden surcharge to their calculations if they pay for the SIM with a credit card. I would argue the cost of buying by credit card would be HIGHER than my calculations above because they'd still have to pay the 3.5% when converting money to pay for their credit card bills AND have to add on the extra $1 USD for the transaction processing fee, plus any additional costs if they cashout other than via PayPal.

Sooo... when I see someone putting land up for sale at less than my calculations for cost per sqm buying at auction... do you think this is bad math skills at play, or cunning strategy?

I can see MAYBE when the SIM has a small amount of coastline that might go higher than the bottom of the market, you might sell off the back 40 for less than cost and make it up on the coast, but it just makes no sense at all when it's all boring green. I grant that others may see and value something I do not.

Okay... when _purchasing_ Linden dollars on the LindeX the surcharge to complete the transaction is US$0.30 (thirty-cents). Sellers of L$ pay a surcharge of 3.5-percent. Your formula should be:

(US$ buy price * L$266) + (US$0.30 * L$266) = L$ cost of sim at auction

are the people doing this folks that you would consider 'seasoned'?
maybe they just dont know what they're doing?

USD auction SIMs can't be paid for by Lindens

We're talking about buying full sims for USD so no purchase of L$ ever happens.

no skye is right i believe.

they still have to sell the land in lindens so ultimatly would have to pay teh 3.5% to get the us$ back

I was trying to point out (gently) that there's an error in your initial formula (which gets replicated throughout the rest of your calculations).

A sim at auction, if it was purchased at US$1,000 would have a Linden dollar value of:

(US$1,000 * LS$266) + (US$0.30 * 266) = $266,080

or a cost per square meter of:

$266,080 / 65536 = L$4.06

Using your formula it would cost L$4.20 per square meter.

Note that I didn't drive the cost per square meter lower, I simply used a more accurate formula to derive the value.

So... a sim purchased at auction for US$3,001 would have a per square meter cost of: L$12.18 which looks like a minor difference of L$0.43 but is over L$28,180.48 for the cost of the entire sim.

I'm not the one who presented the initial formula. I'm simply pointing out the error in it.

Wow... I'm simply looking at your incorrect formula and pointing out the error in it. I'm not the one who started off with an error in the assumption. Let's replace the word "cost" with the word "value" and see what happens:

(US$ buy price * L$266) + (US$0.30 * L$266) = L$ value of sim at auction

*notices his head doesn't SPLODE*

If you don't want people to take apart your maffs don't post them.

I think you and I are starting from a different player perspective.

The person who buys the land at auction must pay for it in USD. They can put it on a credit card or pay for it with cash linden account.

To get cash in a linden account, you have to cash out on the LindeX which has surcharge of 3.5%

For anyone paying on a credit card, they would still have to cash out on the LindeX after they've sold the SIM land in order to pay the credit card bill. Thus, they would still be subject to the 3.5% surcharge.

I am very sorry if I sounded defensive. I think your posts give quality information, Elex, and I was merely trying to clarify the scenario.

I sort of look at it the other way around. Back to front, but you still end up in sort of the same place.

If you can sell off the full sim at L$10/m then...

65536 * L$10 = L$655,360

Sell that on the LindeX at L$265/US$1 gets you US$2473.06

Then subtract the 3.5% fee and that gives you US$2386.50

So if you buy a full mainland sim for US$2000 and sell it all at L$10/m then you see a margin of US$386.50. Subtract the 1-month tier you have to pay on the sim, and that leaves a net profit of US$191.50.

So now if I take all those numbers and work the other way around, assuming the sim cost US$3000 instead of $2000...

3000 for the sim plus 195 for the one month of tier, is 3195. Since my cost is in US$ but my sales will be in L$ I have to factor in the 3.5% take that the LindeX charges, so multiply 3195 by 1.035 brings my costs to US$3306.83. Multiply that by 265 (assuming an exchange rate of 265/1) and my costs, expressed in L$, are about L$876309. Divide that into the area of the sim, and it looks like my break-even rate is L$13.38 per square meter.

So my numbers are higher than the original poster, but I don't think he factored in the $195 tier you'd have to pay. Of course, I'm just messing around with a calculator - I don't have the money to play the land game myself, so I'd expect one of the actual land traders can say whether any of this makes sense or not.

-Atashi

Okay... then WHY (for cripes sake) did you introduce a 3.5-percent surcharge in your original post (OP)?



And notice that you introduce the word "cost" and then beat me up for using the word cost in a later post.

Not only are you "having your cake and eating it, too" but it must be freaking delicious.

In order to realize a RL profit on the sale of the land -- the sale is in L$ -- you have to sell those L$ for US$ and the 3.5 percent is a cost of that sale.

That's why you have to consider the 3.5% as part of your costs. When I work out my profitability from my island and my store, I always include the 3.5% in my spreadsheet.

-Atashi

Technically speaking you don't pay $195 in tier for every sim. You pay one thirtieth of $195 for every day that you hold the land. i.e. in one month I can (theoretically) buy a sim a day and sell the whole thing without going over $195 tier so therefore I only pay a thirtieth of $195 for each sim. If you could somehow buy and sell entire sims every single second of the day and night the tier costs would be tiny.

GO TO MY FOOTLOCKER AND GET MY BELT. NOW!

Yeah, thanks for tossing that out there, it's a valid point. Typically, after I find an error in someone's maffs I don't sit there and do a strict cost calculation (It's not my job to be the homework helper) but wait until they go back and correct their assumptions.

(I am just dying laughing over this entire thread.)

It's relevant but makes almost no difference, see my post.



Laugh it up if you like, but you're the one that is mistaken.

I find this hard to believe. I have not seen any proportional billing at all, and the way I understand it, you are billed for the maximum amount held. Unless I'm not understanding you....

Thanks for that clarification Elanthius! I hadn't considered that, but it makes good sense.

And Elex - I love threads like this. I don't know why but anything about the SL economy or land market, just fascinate me. It also amuses me from the irony that in school I was lousy in math and avoided topics like accounting and economy like the plague.

Not to mention, with the grid down there's not much else to do but hang out on the forums... well that, or do some work.



-Atashi

p.s. Cristalle, the reason Tier is a much lower factor is precisely because it's calculated by the maximum amount - As Elanthius says, if you could sell the whole sim in a day then buy a new one the next day, and so on, then your cost for the whole month is still for only one sim even though you've bought and sold 30 of them. As long as you don't hold more than one sim at a time, you don't have to pay tier on more than one sim at the end of the month.

Then toss up the correct version of the formula, cupcake. Show us your maffs. SHOW US!

OK, of course you are correct there is no proportional billing.

Imagine this scenario though.

Day 1 buy a sim, I will now be charged $195 on day 30.
Day 2 sell the entire sim. I now am using 0 tier.
Day 3 buy a sim I am now using 65536 sqm
Day 4 sell entire sim. I am now using 0 tier.

At this point I am going to be charged $195 once but I have flipped two sims. Therefore it's fair to split the tier cost between then.
If I'm clever I could probably do this about 6 or 7 times in a month. If I'm a monster land trader paying for multiple sims, buying 10 at a time and selling them quickly it may be possible to make tier costs per flipped sim even smaller.

Skye is exactly correct except she failed to consider the $1 charge for transferring money out to paypal and the tier cost which as we've discussed is kinda complicated to put down in theory. I'd estimate it at $195/6.

Yeah. Me, too. I really miss the old Land & Economy forum. This is the hardest I've laughed in weeks. As we go along it reminds me of an old joke...

A doctor, an engineer, and an economist are trapped on a desert island and all they have is a can of beans and no can opener.

The doctor says, "I know how to open this can of beans. I'll sharpen a rock and make an incision along the side of the can and.. presto... we'll be eating beans."

The engineer says, "I know how to open this can of beans. I'll build a fire, place the can of beans in the center of the fire, the heat will cause the beans inside to expand, rupturing the side of the can, and... presto.. we'll be eating hot beans."

The economist says, "Assuming we have a can of beans..."

Okay, that makes sense. But the only way a monster land trader could do this would be to take advantage in the delay of claiming land - you only have a week after it's paid for. So, theoretically, I think they can only get away with it if they bought 3 or 4 at any given time, because the moment you claim it, your billing tier applies.

I guess it would just be simpler if the people using bots could just set them to steal (whoops, I meant get a good deal) on new sims without the tedious work of actually figuring out how to make a profit.

There is another way that this works out and that is as a tax write off. If you have a biz you can stand some loss for long term gain on taxes in RL.

As well, I expect that some of these people are like me and get all caught up in buying a sim at auction and don't do the math at all. I must admit to being one of those people who hasn't really considered the costs and profits when I have bought and sold land. Since my goal has been to set up a biz here, location has meant more than anything so I've been taking a bite when I sell just to leave an area. Also, I sell to land dealers who are part of the community and deal honorably; make their money the hard way so I feel good about that anyway. And I don't mind if they make money on the deal since I think honest biz people need to be supported.

If one can only buy a SIM with a credit card or US dollar cash account, you're going to incur a 3.5% surcharge at least once. Either cashing out your lindens to pay for the SIM, or cashing out your linden profit to pay the credit card bill.

You can add to those costs by buying lindens in, then cashing them out to pay for the SIM, but again, that just pushes the cost for the land you are buying higher.

I'm laughing, too. You've answered my original question. :o)