What do you consider to be a reasonable markup on rental properties?

Obviously, you have to charge enough to cover your tier. But beyond that, what is considered a reasonable markup percentage for rental properties? In my case, residential homes on landscaped lots.

Thanks for any feedback,
Princess Ivory

I would do some research and visit other rental properties of the same type. Take note of the prices, prim allotments, AND how many vacancies they have. You don't have a way to tell how long they've been there (obviously an area that just opened is going to have a lot of vacancies) but you can check back over the course of a week or two and see how quickly they're filling up. If their prices are reasonable, then they'll fill up fairly quickly. If the prices are too high, the lots will sit empty for a long time and the turnover rate will be high as residents find that they can get a better deal elsewhere.

I was renting a 4096m (900+ prim) waterfront parcel for quite a while - I just left last month after I decided to cut my SL-related expenses. I paid $25 US per month for it and thought it was a pretty reasonable rate. (I think the owner had bought her islands at the old rate, so properties on newer servers probably need to charge more.)

Hi Princess, it is not just the tier payments that have to be recovered, but the capital cost of the homes, the furniture, security, rental system, teleport systems, landscaping, wages of a Sales Person/Estate Manager, ads, etc etc. On top of that, you have to consider the occupancy rate.

I would aim to recover your capital costs over 18 months, including the ongoing costs such as wages and advertising, factor in the tier, assume an occupancy of 50%, and price your rentals to cover.

No-one said it was going to be easy....



IM me in world if you need any further info.

Vi

And you will come to the conclusion that many rentals are outrageously underpriced.

You could do that, as you can set whatever price you want, but you'll likely find that you will have difficulty finding and retaining tenants.

My rental parcels are currently scaled to L$195 / 512 sqm / week, with full prim allowance, and I still have quite a few vacancies. If you follow ALL the factors above in pricing, I think you'd probably end up with a final price higher than mine.

Edited to add: just realized your name, and Alphonsus, sounded familiar. You CAN set more of a mark-up, if you have something additional to offer. For example, if you are offering parcels in Faeria Village -- well, I've been there, and it's beautiful -- and that's certainly worth something more.

Good luck!

are there standard formulas that people start with?

like a 512 lot with 117 prims is X?

or lindens per week per prim?

or per sqM?

my rates tend to run aroudn 2 x prims sometrimes 2.25

most of my land is rented bare no houses or other things on it unless requested

i do have some empty sometimes but mine is mainland.

I dont think my price is too high I recover the tier fees and a little bit extra but not much although if i have lots of land i can actually lower my prices and still make a profit

Yes, Ged, some of the homes for rent are in Faeria (in the Huin sim). (And I've been wanting to meet you! I have watched with interest your developing projects in Linji Haven and Peronaut - your covenant in particular has been very useful). Mykyl and I between the two of us have now bought out over half of the Huin sim, cleared out the clubs and garbage, and are building a beautiful community with Faeria Village, a shopping area of artists and artisans, Faeria Palace for special events, and I am developing lovely rental cottages in Faeria Forest. The goal is for lots of public green spaces, and peaceful surroundings. So I do hope that people will be willing to pay a little extra to be part of such a community. The lots come with homes and landscaping, and a prim allowance for decorating.

I am doing the the same thing in Nakji, an adjacent sim. I have a few cottages there, and another of our friends has bought out almost the entire remainder of the sim to convert it to a town and prairie inspired by Garrison Keillor's Lake Wobegon. Again, I hope that the eventual setting of public open spaces and peaceful beauty will allow for us to charge slightly higher prices.

But my goal is to keep the housing affordable. I am not looking to make a profit, as much as I am trying to generate some revenue to offset the tier costs associated with owning and maintaining such large tracts of land that are mostly devoted to public parks and forest. It is a somewhat altruistic project in that sense. But I do want to make sure that I am at least priced fairly, compared to the rest of the market, so that I do not underprice myself unintentionally. I am new to the rental properties market, and I have much to learn!

Thanks for you help, everyone, and please keep the suggestions and recommendations coming it! This is the thing I like the most about the SL community - having access to other people for ideas and advice!

Are there real estate groups that anyone can suggest that I join, to be part of a community of other people also working in the rental land market, so that we can share ideas, and I can belong to an organization that will lend me a little more credibility to my tenants?

Princess Ivory

PS - If anyone is interested in renting cottages in these sims, please contact me, or visit the sims and look for properties managed by Fairy Tale Cottages. There is a small cottage in Faeria Forest that serves as the main business office, and eventually all of the information about our various offerings will be available there. I am in the process of setting things up now, and the rental boxes are not quite ready, but if you are interested, we can work to get you set up with something promptly!

This is a good question. Does anyone else have any input into this? I too would be interested in the answer.

What I have preliminarily done is determine how much land tier that property accounts for, and divide that amount proportionally between the available rental plots. Because the plots come with a house and landscaping, I looked at my remaining balance of prims after accounting for that, and for the landscaping of the public area (sidewalks, street lamps, and a small park with a swing). Likewise, I divided the remaining prims proportionally amongst the properties. So I have come out with a basic projection of baseline revenue to generate in rent, and the prim allowance to offer.

What I don't know is how much of a markup to put on top of the baseline, in order to recover startup costs, ongoing expenses, etc. I tried using a 20%markup, with a 24 month period to recoup the cost of purchasing the land. But I'm not sure if maybe that is too high? And that still doesn't account for the purchase of the houses, landscaping, etc. I might just eat those costs, in the short term. And worry more about recovering them after the land itself has been paid back. Obviously, this is a long term project, and not one in which anyone can get rich quick!

I look forward to hearing peoples's feed back about Usul's question.

Princess Ivory

One thing to remember is that in the end, your tenants do NOT care how much you invested in purchasing the land, buildings, furnishings, the landscaping, your time, etc. For them, it's more of a bottom line "this many L$ per week to get XYZ."

This is not meant to be rude, or crass, but just a fact of the competitive nature of land, either to purchase or to rent.

Well-established people like Desmond Shang / Caledon can afford a larger markup, and still maintain a waiting list many sims long, because of the well-known quality of Caledon. People feel safe knowing they'll get more, for what they pay. And even so, Caledon rates are pretty good.

You and I, relative unknowns, will need to rely on delivering as much as possible to the tenants, while generating good-will, a reputation for dealing fairly, and developing beautiful surroundings. How much it costs US to get started really isn't a factor to the tenants.

It's good that you have a LARGE amount of land, because your tier level should be decent. Let's base things on an US$ to L$ exchange rate of L$270/US$1 -- you can quibble whether it should be a little higher, or lower, but let's just deal with roughly that amount. Imagine that ALL you wanted to do was recoup tier.

If ALL the land you owned and planned to rent was a total of 4096 sqm --> LL tier US$25/month --> L$6,750/month --> L$1,549/week --> rent at L$195 / 512 sqm / week.

Now, if instead you owned and planned to rent a total of 65,536 sqm --> LL tier US$195/month --> L$52,650/month --> L$12,084/week --> rent at L$94 / 512 sqm / week.

(Note that US$195/month is current mainland tier, or old island fees; new island fees are now US$295/month, which to me, made it hopeless for a rental sim.)

Wow, the land baron who owns and rents an entire sim, can make break-even to pay tier renting at L$94 / 512sqm / week, compared to a small landowner with 4,096 sqm of tier, who would require L$195/512sqm/week.

From the perspective of the tenant, do they care what your tier level is? No, not really. In fact, if you own and rent only 4,096 sqm, the land surrounding that parcel is probably in Mainland Hell, and LESS attractive to the tenant, compared to if an entire, or near-entire, sim is being rented, like your Hurin, or my Linji and Peronaut.

Those numbers above are the absolute lowest you can go, and break even (other than quibbling with the exchange rate). But you, like me, are probably setting aside "protected public space", of roads, parks, etc, that won't be rented. Since they won't be rented, you'll need somewhat higher rental rates to break-even.

For me, in Peronaut, fully 16,384 sqm of the sim's 65,536 sqm is set aside as public space, with roads, parks, streams, sitting areas, water areas, etc. That's fully 25% of the Sim, unrentable, which means I need to charge higher rent, than the calculation above. I'm hoping that the higher price is justified by the improved traffic via the roads, and the beauty added. But that's MY view; and tenants have their own perspective, and vote with their L$.

And, this is only to "break even" with the monthly tier payment. If you are actually hoping to recoup your initial costs, you'll charge some amount more. But remember, again, your tenants don't really care that it will take 18 months, or 24 months, or 36 months, for you simply to break even with your initial purchase. All they'll see is that their rent is higher. So, you charge what you can.

Desmond Shang / Caledon, is able to CHARGE an upfront purchase price, that FULLY covers his cost of the sim, right at the get-go. So, as soon as a parcel is rented, his purchase price is already fully covered. Lucky him. You and I can't do that, I think. I toyed with a fairly modest L$1 per sqm "joining fee" (only about 1/10th the recoup cost), but abandoned it, as it would probably make it more difficult to attract tenants.

Recouping purchase price: if a sim was purchased for US$2500 = L$675,000, and I hoped to recoup that in 18 months, then I'd need to charge an EXTRA L$37,500 per month total, over 18 months. In Peronaut, which only has 75% are rentable, I'd have to charge an ADDITIONAL L$390 per 512 sqm per month, or L$90 per 512 sqm per week. And, that's at an absolute 100% every rentable parcel rented, 100% of the time, for 18 months. The above L$94 per 512 sqm per week to make break-even on tier alone, would be increased to L$185 per 512 sqm per week, to make tier and recoup in 18 months.

All this, so that at the end of 18 months (realistically, much longer, because I've found that you can NOT expect 100% full tenancy occupancy), I can have JUST broken even with the startup costs and ongoing monthly tier. And, NOT including the purchase of prefabs, etc.

With these calculations, I think it should be clear to everyone that land barons who rent are taking on a high initial investment, high risk, long-term, not particularly profitable method of "business." So, it's a good thing that *I* personally do the Linji / Peronaut thing, because *I* *wanted* to create nice space on the Mainland, and I've got my script sales as my "actual" business...

Prims: an entire 65,536 sqm sim get 15,000 prims, for roughly 117 prims per 512 sqm. I call this "full prims." If you have prefabs on parcels, you might have to decrease the prims you offer, but that might be worth it if the prefabs are desirable. Or, if you set aside "public space" in the same sim, and the public space doesn't use its full allotment, you can distribute the "extra prims" to the rented parcels. My tactic was to offer "full prims" (117 per 512 sqm), and perhaps in the future, the "extras" from the public spaces can be rented out separately to people who need them.

==========

In the end, all you can do is see what other people are renting for, and what they offer, and see whether your offer 'competes' favorably. We might as well start collecting some rates:

- one major land baron, rents mainland at L$210 / 512 sqm / week, with parcels from 512 sq m and up, full prims; uncovenanted isolated mainland parcels, with FULL freedom for people to do whatever they like

- me (weird, to think of myself as a land baron...): L$195 / 512 sqm / week, with parcels from ~2048 to 4096 sqm, full prims; full rental sim, unthemed, but covenanted against eyesores / laggy crap. And I'm running at ~70% occupancy of available parcels, I think.

- Damet, above, writes: "my rates tend to run aroudn 2 x prims sometrimes 2.25; most of my land is rented bare no houses or other things on it unless requested; i do have some empty sometimes but mine is mainland." This calculates out to L$234 to L$263 / 512 sqm / ?week (not specified), on Mainland, presumably uncovenanted. I want to know his secret of how he keeps most of it filled!


Your areas sound like they will be BEAUTIFUL and themed. You'll include structures? Works well, if it fits the tenant's tastes. What can you charge? Who knows? But at least, you know that if it's LOWER than L$195 / 512sqm / week, at least in my opinion, you've got a great price. And, if you learn Damet's secret of filling rental parcels, you could go up to L$260 / 512 sqm / week. (And I'll pay you for the secret, please.)

In the end, it's a tough "business" -- which is why I agree with Desmond Shang's repeated comment -- don't do it for the money; do it because you enjoy it.

Lot of factors to consider.


1) What others are charging.

Yup, $L rates - no matter how pretty an area looks. In fact, if the area is too pretty, people will feel less like they have their own area, but rather that they get to pay you to make *your* area pretty, and are afraid to change anything at risk of uglifying the area, or breaking rules. So 'really pretty' is not always equal to 'I can get a lot for it'. It's really not land rental, it's creative control rental.


2) How long you want to do this.

If you intend to be around after SL's boom times have faded a bit, make sure you can operate when you aren't 100% full. That means: making a profit nowadays isn't an option, it's a necessity, unless you plan to fold or sell off lots of land the moment the party's over.


3) How big you want to get. Want 10 tenants renting from you? 25? 100? A typical sim can easily have 25 to 50 people in it. Read: you'll have hours of IM's and small tasks to perform daily upon login to SL. It's not 100% fun. It comes down to this: How many hours a day are you willing to do stuff for others, for free, for the forseeable future?

Sounds cynical but it's not. It's better to take a little profit and feel okay with it, than to get burnt out and ask everyone to leave when you've simply 'had enough'.


4) 'land fee' -vs- 'pure rentals' ...say for example you buy a full sim for 1000 USD (hypothetically) and offer walk-in, nothing down rentals. Well guess what happens when you are popular and the sim fills up... You yourself may not charge to rent in your land, but there's nothing to stop a resident from making a quiet deal, and 'selling' his rental rights to someone else!

So you'll find people speculating with the land you paid for, making back the difference you were too nice to charge for up front. They could recover 100%+ of your purchase investment this way for themselves, while you are still 'out' the money. And furthermore, they make that money off your hard work providing service and fun for your residents!

So if for no other reason, a small land fee up front is a good way to go to curb that. Just make sure you are honest and don't call it 'buying' the land - and you don't need to charge full mainland land prices - charge just enough to curb speculators from parasiting themselves upon your project.


5) For those who wonder "Why are discount rentals not moving? They are a steal!" Well, problem is, in a lot of people's minds price = value. So if you charge nearly nothing, it's treated like it's worth nearly nothing. Charge a fair amount.


6) Be really cautious if someone tells you exactly what to charge, even if you ask around. Better to understand the market and take a stab at it yourself, than wonder what happened because a few things changed, and you can't get anyone to be a resident on your land any more.

Good luck!

Grins - heya Ged, fun comments

Truth to tell, I *don't* charge for 100% of land cost up front - it's closer to 80%. I make it back soon enough, and yeah, I *could* charge full recovery rates, but I don't. I just charge enough to curb land speculators from renting and selling it 'for' me.

Also, for new sims I generally raise about 900 USD beforehand - that's 3 months tier, just in case. So for me it's 1675 + 900 USD up front, then I take in about 1400 USD from residents - each new sim leaves me about 1200 USD lighter when new (900 of it I still have, but it's tied up as reserves), and I make the rest back over following months.

And yeah, if you don't REALLY love doing this... well, nuff said.

Agree with most of what Desmond said.



#4 only relevant when you are FILLED. When there are empty parcels around, unless they are really "choice" parcels, it's not much of a worry. One iteration of my covenant, did include the stipulation of a "joining fee" after the Sim filled, because Desmond has pointed out this problem before. But I removed it, because it's only a problem once parcels are unavailable, directly from you.



LOL -- is that my problem? Too bad -- I promised to never raise rates, unless LL tiers changed.




For me, the whole land venture is because I like it, and I like seeing my oasis on the mainland, free of ad-spam lots, ugliness, and lag -- and seeing what people create there. In the end, I have no problem making some profit via the rentals, but... it's pretty clear to me that producing scripts, with no investment other than time and effort, is an "easier' way to go, if "profit" were the objective.

This is all giving me a headache but it's all good reading for me personally.

Another factor to consider is whether you want to rent just land or property. If you're renting property there's the prim issue to consider. A house may take up a lot of prims, your residents will probably want their own furniture, so you may need some spare land on the same sim to allow them the extra prims they'll be looking for. Obviously this will have a slight impact on the prices you charge for rental.

Now I need to get out a pen and paper and try and remember how to do long division by hand!

As someone who rents from an Estate Owner, I would have to say the service was a big selling point. When someone tried to start a casino, the manager was there in minutes returning their garbage. It helps balance the frustration I feel when dealing with LL about my mainland location. I know when I retreat to the beach that it is a safe place that will be restful to me.

I think the service, the 100s of IMs that the manager deals with are the key. And I would pay a bit more for that for sure. I think if people renting land would stress the service they could charge a bit more. Goes along with LL giving more support to people with more financial stake in SL. Maybe when people rent they could also have a choice of management services?

Bare land and do what you want up to a beautiful community (more my choice) and full service.

Ged, Princess and Desmond...aren't you also providing a location for an evolving community?

If people don't have to spend their time in SL dealing with griefers and ugliness, they can more time making friends and cool stuff.

Yes, part of the holdings include space that will not be rented, that can be used for additional prims. Unfortunately, that means the rent charged for the land that is rented has to absorb some of the tier costs of that other land, as it is being used to provide prims for the rental community.

It sure isn't easy to figure out, is it? And then of course, once I get past these decisions, comes advertising and marketing. And then dealing with tenants. And dealing with tenants. And dealing with tenants. And so it goes on.....

Yes, providing a "community" is part of what the attraction is with places like Caledon, and Ged's new sims as well. I am attempting something similar - but in my case we did not buy the sim outright. We have gradually bought up most of the sim, and have converted many of the remaining residents to supporting our cause, and working to make their own property compatible with what we are doing. And of course, the value of their own property just increased, because they are now surrounded by forests and parks, instead of casinos and ad farms, so they are mostly pretty happy to have us there.

I really appreciate everyone being so helpful here, and offering such well-considered, lengthy responses.

Princess Ivory

When you're dealing with your own island...square meters are useless for renting, since you have better control over the amount of prims per SM you can allocate...it's all about the amount of prims you offer per rental plot. I've tried to get to a L$5 per prim value...so, 100 prims is L$500 per week.

If I can't maintain a high occupancy rate I will adjust that down until the occupancy rate increases...so, in short, your rental rates will change continually dependent on your occupancy rates.

so, what does a prim cost an island owner per week?

$295 tier = L$1.20
$195 tier = L$0.80

I own a $195 tier island, so the $L5 per prim is a pretty good profit...if the island is fully rented, but full occupancy is a state that take time and effort to maintain (something most "landlords" don't think about is "how much does my time cost?", currently the island is averaging L$1.25 per prim rate (with all the island infrastructure that takes away from the prims you have available to rent)...which is still paying for itself.

I hope that info helps...if you'd like you, you can IM in-world or visit me on Wicked Isle.

Ged, yeah, raising rates isn't cool unless the Company does it. Would say a lot about someone if they did that without really good cause.



Some people just rent land, so it's not necessarily 'community' - others of us really are into the community thing as much as we can, because, well, it's fun! Far as I'm concerned, that's the real secret.

A bunch of us were standing around last night in Caledon, saying: too much to do! RFL, the 'war with Neualtenburg' machanima filming (almost done), SL's 4th birthday, new sim development, live theatre, Mystery Night... and realised that before, we were all standing around the grid wondering *what* to do! That's the magic right there.

I was inspired by Ged's Linji Haven project and decided to launch my own project along the lines of a "theme" that I enjoy --> Pine Wooded Hillsides with Cabins, etc. As I see it, there are at least two types of Landlords in SL: Those in it purely for profit, and those more altruistic who want to have as much enjoyment as possible in a like-minded community. I am in the latter group.

When I bought my first sim, I installed roads, paths, a bridge, an area for a future stream, and trees before I ever offered a single parcel. I didn't keep a tally of the sqm alotted, I just worked on it till it felt right. It came to about 15% of the sqm, but didn't yield a ton of extra prims because of all the landscaping.

Since I am still learning, I do have a question tho:


Can't you control sub-letting to some extent by controlling GROUP members and privledges ? Having roles that the payee has more privledges than just a "basic member"?


Yes! I think people under-estimate the amount of effort it takes to provide a suitable ambience and provide that level of customer service (ejecting griefers and their residue) that is required to provide a quality experience.

I bought a sim a few months ago, mainly because I had such a bad deal when I first bought land from an estate as a newbie. Once Id paid my land cost ($395) and fees ($75)I was left to get on with it. Im not that concerned about making a profit so long as I cover LLs island fees (which fortunately I have done in quite a short time). I also wanted nice surroundings and I know ppl will go hiss boo but I wanted green and grass and trees not sand sand sand, which after a few hours of looking at it gives me a headache. I really wanted to help the people who bought land there to learn to build, what to look for when buying things (ie not make the expensive purchasing mistakes I did) and just to be able to enjoy SL as much as i do. OK so Im not a good business woman but I see this as a really enjoyable pastime and not a money making scheme.

I too decided to go for my own sim, after my third time of mainland living hit lag (a mall next door......)

Woohoo! I thought, rent some out, make tier, make a profit, buy another island, repeat ad nauseam, become a..... (awed whisper...) "land baron"..... (insert hollow laugh of your choice here....)

The reality is rather different!

I actually rent by prim allowance rather than plot size, since we have a fair amount of landscaped space (and underwater fun too), which enabled me to give 2x standard prim per plot. We have 19 houses now on Fatimas Love, different sizes & styles but all in a Victorian/Edwardian British "village" theme. Oh and a pub....

I did some homework while we were landscaping and setting up and quickly realised that I would never make any real "profit" asking a realistic rent... after about 4 weeks of being open for business we have 12 houses rented out, mostly long term too. There's quite a bit of work involved in answering questions, pleas for help, setting stuff up, and helping out with more general questions ("how do I..." etc etc), dealing with the odd idiot visitor who decides our rules aren't meant for him/her.... and at the end of the month, with 100% occupancy, I still won't cover tier.

And you know what? We LOVE it! We get a great deal of fun out of helping our residents, helping to create a small community, everyone gets on well with each other, and we have some great laughs along the way. I have never had so much FUN before!

I rent my estate land for 1.6L per square meter. It's empty plots, custom sized in many cases to the residents needs, with 16 m buffer zones between plots. Minimal landscaping, no employees but myself. I guess you could call me the bargain basement of Estate renters.

But i have 100% occupancy of very happy renters and I will soon be making a slim profit. I don't really have profit as a motive however, I do it more as an activity I enjoy.

not accounting for 'cost of purchase' of the land, just on 'tier'

just a example, if your at the 40$ a month level and you have tier maxed out

8704 sq meters of land, + 10% if you deed it to your group giving you 9574 Sq Meters

40 / 9574 = .0041799 is what you pay per sq meter (usd)

.0041799 * 512 = 2.14USD montly tier for 117 prims.

2.14 / 117 = .00182827 USD per prim a month

thats just your cost at 40$ tier level maxed out, mark it up from there





hope that helps a little