Posts Tagged 'Second Life land pricing'

Virtual Real Estate Pricing Post for Forums

In staying true to our statement on being transparent in our dealings we are adding our “formula” on how we calculate tier fees. We do this for the same reason we post our long term plans, our sim names, and create a buying guide. Because we care about building a long standing and honest business relationships with our customers. The formula, and a brief explanation follow the post text of our latest sl forum advertising:
Want fair land prices?  Don’t determine if land is a good deal with empty promises.  It’s very simple and consists of two main points:

1) sim owners need to cover their fees to Linden and their time with administration tasks and
2) you want a fair price.

Long term investments need long term planning.  That’s why we have a real formula to calculate fair prices on land.  We sell for $1 per square meter and recover the initial sim cost with 16 months of 100% occupancy.  In reality, it’s hard to maintain 100% occupancy.  So two years is our target.  That means we are not making any profit until that time.

If you think that is a stupid way to do business, that is fine.  Find a legitimate business that does not take initial investment and long term plans, and creates a recurring monthly income in two years.  if you do, then stop reading and do it.

Do some people make a quick buck isl?  Yes and they hurt others to do so.

What does this mean for you? About as low a price as you can find for land.  And in an estate with solid growth plans for the long run.  We will be here next year and so will be your investment.

Shop around, compare prices and what you get.  In the end, the only good deal is one that you are happy with.

Okay onto our formula. It took two of us a few hours to crunch these numbers and we drew upon both a statistical major and a math minor to arrive at what may seem arbitrary. We looked at current sim pricing (even though we have an older priced one) and assumed a 100% occupancy rate. That rate is actually very difficult to achieve, however there are factors that help offset it. A certain percentage of land owners will abandon their land for a variety of reasons (life changes, leaving sl, change in sl focus) and some land will be resold. Our formula takes into account our low selling price of $1L per sm (square metre). The current average for private sims is about $3.93L per sm according to Jack Linden.
Our formula calculates a 16 month recovery time to reach the break even point. That means no profits until 16 months full occupancy. Again, that is not realistic but we needed some baseline assumptions and we are in this for the long haul. We also have this so that we can continue to add sims on a steady basis. Our online plans illustrate that fairly well. Although the exact mix of OpenSpace to full sims may slightly change, the plans are there to guide us and reassure our Residents and give them an idea of what will be next to their sim. Nothing worse than thinking you have prime beach front land only to have a commercial sim pop up!
Full sims: 97,000/sm for sale = tier per sm
OS sims: 24,250/sm for sale = tier per sm
Believe it or not, those formulas take into account the prim bonus and amount of free space on any sim.
Here’s the breakdown: take the amount of sm of a sim (65,536) divided by the actual sm for sale to get the percentage of the sim that will actually generate income. That income has to equal US$295 per month to cover the tier fee to Linden labs. Now we also take into account the initial price of US$1,000 and the period desired to recoup that fee (15.6 months to be exact). With this we can arrive at a price per sm to charge for the salable land. Now we also make an assumption on the exchange rate of about 270L/USD. This fluctuates, but for right now – it works. If this varies much in the future, our Tier boxes will get hooked to the LindeX data and have up to the minute pricing (Hippos already have that functionality built in). The less land that we offer per sim means a higher prim bonus which adds value. You run out of prims before you run out of land. So the formula “automatically” takes care of that.
As far as any of us know, this is the first time such a formula has been published on the web. And our guess is because most people don’t put much thought into their pricing and vary their pricing from sim to sim. Again, our “simple” formula actually does that for us by looking at the land set aside as “free” or public space. So our sims with their public borders mean that we have landscaped that open space to add value to that sim.
Waiting 16 months may seem like a really long time, but if you could open a real business and recoup your capital in 16 months and set up a recurring monthly income, then that is what you should be doing right now instead of reading about some yahoo virtual real estate plans! :)