Few people understand the math behind rentals in Second Life. I'll just stick to a discussion of Mainland here.
In order to run a rentals business, you have to understand the "rule of 13" first and foremost: every prim you put out will cost you US$.013 in real money. I will get to how this figure can be viewed as "adjusted" but let's work with it.
That means if you offer someone 150 prims on a 512 lot that holds 117 prims, in order to compete with the Linden Homes program that undermines the independent rentals market, you will have to pay Linden Lab $1.95 per parcel, as a person who first has to pay Linden Lab for tier for your "land" -- your server space rentals -- before you can re-rent to others in Second Life.
That's if you are already at the "discount level" for buying sims -- which means your tier is calculated at the rate of $195/65536 meters and 15,000 prims --- you are not paying the step-ups of tier under the $195 level which is calculated at a lower rate.
Another way to phrase this is to say that every meter of land you make available, you are paying $0.0029 per meter. On Mainland, 512 meters has 117 prims in it as a hard stop -- on homesteads, this is greater, but let's stick to discussion of Mainland. This is an engineered feature of SL that cannot change if the parcel stands alone -- the system automatically returns the 118th prim or any number of prims beyond 117.
So if you group you land, which most rentals agents do, you can get two boons:
1) The first boon is that you can "borrow" prims from any other parcel on the sim in that group and combine it with any other parcel. That way you can make available 150 prims on a parcel that is only set to hold 117 -- in a group this is possible, and the person can put out more prims past 117. Of course, this also means anyone can use up any and all prims on that sim in your group at any time -- and this can be the bane of group rentals. But I find that most people are law-abiding, they don't do this, they don't need to do this, and it works. There are actually only a tiny percent who abuse this affordance, I find.
2) The second boon is that you can put your land in a group, and the Linden system then automatically ads 10% more land tier available for what you've put in. This group tier bonus is a policy of Linden Lab's that has been in effect for much of the history of SL. (Remember land tier is not the same as land itself -- it's only the "credit" that covers the cost of land -- you will still have to go out and buy that land at market rates in order to apply that bonus tier to it.)
So if you put in 512, you get 51 meters. If you put 6000, you get 600 meters. Essentially this means that if you have 10 sims of land and you group then all, you generate yourself a free, 11th sim that has no tier cost.
Now, this is where cynics and socialist oldbies and all kinds of naysayers to normal business say, oh, but Prokofy, why are you whining about rentals math when you got an entire free sim and you now really only pay in fact $0.0027 per meter, with that free sim diluting your costs! Leave aside the point that the difference between 0.0027 and 0.0029 is not great, let's look at the reality. I won't even explain the reality that most full Mainland sims do not have 65536 of them that you control, because they have Linden roads or water on them so if you generate extra tier in a group, you may often then have to use it on another sim completely.
But, more to the point, in fact, you can't count that generated "extra land" as somehow diluting your costs because you need it for several things: first, offering more prims per parcel to compete with the Lindens, and second, for easements or commons areas that make rental areas look nice. Sure, you can carve up a 4096 into 8 little 512 plots and rent them all out, but then you won't even have a landing area with a sign for instructions. Some agents also don't want the rental box itself to be on group land and carve out a 16 m to put it on separately. Just as an island divided into 16 little flat white pancakes with no space between them looks like ass, and you wish the agent would at least take one of the 4096s to create a little bit of mountain and river among the pancakes, so on the small Mainland scale of a 4096 or 8192 rentals empire, you need a little bit of grass, colour, ease, among the many shacks and black box clubs that can make up the typical low-end "working class neighbourhood," as the SL Herald used to call these sims.
I not only routinely offer easements and commons, I am dedicated to having some of the largest ones, i.e. when I developed Ravenglass the sim, I put 10,000 meters of forest and pond area throughout the sim to make it have a nicer feel and give people space to walk around in and hang out and launch boats and such.
There have been so many nasty oldbies that have attacked the 10% group discount the Lindens provide to somewhat ease the pain of Mainland business -- it's really disgraceful on their part. Some of the loudest complainers are those that got the tier-free 4096s for life that came with the first Charter Memberships. Some of them strung together a bunch of these on alts and took over a half or more of a sim in their day running tier-free businesses that newer people could never compete with.
The island empires also have their cut rates that are a secret -- but everyone knows the Lindens give deals to people with 100 or 200 or more island empires. That's as it should be in any business -- bulk discounts. They should just be public with this information, however.
The Mainland has only the group 10% discount, and frankly, it doesn't help most people. Did that 50 or 80 or even 410 or 1638 you got from your group with 4096 or 16,834 REALLY make a difference? My "extra sim" has all gone to either easements or the land preserve or extra prims. So I don't calculate my costs at this supposedly diluted tier rate because I don't have income-producing land from that extra. Even if I use that "free tier land" to provide extra prims, that was only the cost of even entering business against the Lindens in the first place.
Lately I have taken more steps to cut into that load of cost by putting in rentals in the land preserve or selling land or putting skyboxes above woods since it's more or less workable. The vexation of having to endlessly explain that management prims don't count isn't quite offset but in theory it is.
So let's come down now to discuss $1/prim communities, which I am known for, pride myself for, and am devoted to maintaining.
The bottom line is that $1/prim communities do not pay for themselves and cost you money. If the theory is that they are "loss leaders" like that half-price cheese in the RL supermarket that draws you there and then you buy more, or that "$35L Sunday" that gets you in an SL store and you buy more -- i.e. let's say in theory a person in a newbie starter community graduates up to a higher level and pays you more at a higher rate, say $1.2/prim or even $1.4 or $1.5.
The reality is, this doesn't happen. Years ago a smart fellow rentals agent, a US military veteran and RL businessman (which I am not) said "Get out of this" about my newbies communities because he saw himself what a chronic loss it is for himself and dumped them.
There was a time when SL was new and growing and peaking when you could really count on real newbies to come, rent for $150/150 prims, and then more or less always graduate or graduate in enough numbers to your next level -- $250/150 or even $350/150. Amazing to think I actually rented $350/150 lots in my day. That day is gone forever. The Lindens have done too much to undercut their own customers to make that possible, starting with diluting the cashout of their dollar by forcing independent exchange services out of business, and ending with Linden Home and other things they dream up (remember that time they cratered the auction by lowering and leveling the start price of Mainland sims? Remember the VAT controversy? Remember the Bush Guy, devaluing the view everywhere in the Mainland one meter at a time with "Impeach Bush" signs that you could "buy back the view" from him for outrageous prices?)
Today, with the RL recession and ongoing economic woes for many countries including our own, with the mass exodus from SL and the shrinking of islands and the abandoning of SL and now the announcement of Project Sansar, it's just not realistic to assume such areas are "loss leaders". They only lead your losses -- forever.
Even so, there is a small percent that do graduate. However, here's the thing: they mainly graduate not to YOUR rentals but private islands (I only have one private island). So I am grooming newbies and enabling them to have low costs and get familiar with how land works only to have them fill up Desmond Shang's rentals or Melody Regent's rentals (who has me banned from all her sims because she doesn't like my critical blog). So why should I be doing that, guys?
Well, I personally think it's great if a person even from Uzbekistan -- I've had them! -- or more commonly from Brazil or Poland or Russia or Spain who cannot afford big rentals, who doesn't even have a credit card because those countries make it hard to have one that hooks up to the international system -- can have a Second Life. So it's great if I can do that for people even if they move into the fruit sims later. Sometimes, I see them come back, so you are building up good will for the long term.
But here's the reality of dollar-a-prim areas nowadays -- people move into them permanently who not only really aren't poor or aren't as poor as all that, but who just like grabbing a deal because they can. They are cheapskates and skinflints if not outright deceivers and just generally socialist-minded in some cases -- although it really is laughable to me that some of these people making $150,000 computer programmer salaries in Silicon Valley will argue with me about whether they are paying $1.99 a month or not. I mean, poor people for whom this really represents a significant impact on their groceries are not the people complaining to me -- people whose US Internet connections cost as much as a month's salary for some third-world countries, who have cell phones and drink lattes as well, and who can't be arsed to add a dollar to their online fun budget.
So looking closely at the math:
If you live in a $150/150 prim rental, most likely you will get the further discount and pay $540 -- I have 10% discounts for advance payment which is the sensible thing to do and every rentals company pretty much has that. (One of the ways I know that many of the people in the cheap seats are not poor as all that is that they can buy these rentals for 3 months in advance and stack them up with a $1,640 Linden outlay which is US $6.00.)
BTW, I use the figure of $3.70 per 1,000 Lindens for the cashout figure. Yes, you may see that you can cash out for $3.80 or more. Yes, I always do limited sells and wait. But the cost of the LindEx and the cashout to Paypal should be figured in, and $3.70 probably doesn't even include all that -- plus it just got worse again as Linden just raised their fees again on the LindEx.
Anyway, you will be giving me US $1.998 per month - round it to US $2.00.
But my tier is costing me $1.48 per month (512 x 0.0029). And actually, because I gave you 150 prims and not 117, it costs me $1.95 per month to Linden for your land before I can collect a cent of rent.
So I don't make 52 cents per rental; I make 5 cents per rental of a 512 square meter parcel.
That five cents completely disappears and becomes a deeper whole by cashing out on the LindEx, then moving those funds to PayPal. Let's say that you never cash out your income and use it only to pay tier to Linden Lab -- you still lose because you still have to cash the Lindens on the LindEx and pay the Lindens' currency fees.
A margin of 5 cents a parcel is completely razor-sharp -- but it is actually worse.
That's because you have to keep in mind the occupancy level.
Let's say you have a 4096 chunk of land you've made a newbie area in. You must start by paying Linden Lab US $11.88 per month for that land. That's at the discount rate where you own beyond a sim, so you don't pay $25 US as you would if you didn't own a whole sim first. But it's not at the rate adding in the dilution of grouped land because as I've just explained, that extra land has to go for prims and landscaped square meters to make the rental look habitable -- and frankly, you may even need more than that 10% to accomplish that purpose.
So you've taken out one 512 of the 8 you can chop it into to use for easement -- a nice park, let's say, with also info signs about your rentals. You now have 7 left to rent. If every single one of them rents in full every month and every single person pays you in full for a full month, you will have a revenue of L$3780 or US $13.99 (using $3.70 as your cashout rate). Wow, great news, eh? You earned a profit of US $2.11 for every 4096 community you create with 7 little newbs and a bush. Why, buy yourself another and another at those rates, right? Of course, I'll be the first to warn you this could turn very south for you even if you pick up land at 0.2/meter, which is what you can buy it for now, i.e. less than one Linden land per meter.
Why? Because your occupancy rate, especially on the Mainland, will rarely be 100%.
See what happens quickly to your "profits".
If only 6 out of the 7 rentals available are filled, that's only $11.98 per month. Oops, with just 85% occupancy -- with just one parcel not renting for some reason -- you just moved your "profit" from a "big US $2.11" to a measly 10 US cents. That's how fast it drops. People use the figure of 80% for island solvency but I think 85% is required for Mainland solvency and maybe more, this could be debated. But all it takes is one lot not renting and you will find yourself in the red.
Because you also have to factor in other costs of doing business. Linden moved to mesh -- whoops, you need all mesh content now or you won't have customers because they want the look of mesh. And don't think you save prims -- some of those $50 Gatcha mesh items you bought so cheaply decorate your land? My God, they are prim hogs. But let's say you have your nice little commons with the mesh bench and pot of flowers. Then Linden puts in a patch and your inventory is lost. For ever. You never get it back clearing cash. So, buy a new $600 scripted bench with 20 couples' poses or spend $1600 on a gatcha machine hoping to get that $50 bench you coveted again. Let's hope your scripted rental boxes, your other gadgets don't break on that Linden patch (software update) --or two-- every week to the software -- that will send you buying new inventory as well.
Let's say you build a stable rentals community with stable content that isn't lost or broken, and you keep it always full except on those occasions when the area is griefed or all of SL comes to a halt, that instantly causes numerous refunds on your rentals, despite it being beyond your control. If you've never heard thousands of people tell you that "your land" is responsible for lag, lack of content showing up, invisible prims, griefing on the next sim with items on physics, then you haven't been in the rentals business in Second Life.
And this will be told you by a couple sitting on a scripted shack with scripted rocking chairs, in bling worth 150,000 in visuals, with scripted shot-guns and a sex bed in their hut that could sink 10 sims with the thousands of scripted poses it has on it, with textured rugs and paintings at 1024 or higher than will likely never rez fully in our lifetimes. It will be "your land" that is causing them lag, and it will be "your land" that is causing griefers they are shooting at on the next sim to lob over scripted boxes with ugly textures on physics.
But let's just say you ran between the bullets and the scripted monsters and kept that community going, and extracted US $2.00 out of it month after month. Don't go wild, because your other 4096s will be out of whack with other problems, and you'll need that revenue to use on them. But maybe, cross your fingers, all will go well.
After a year, you will have US $24 in profits or maybe even $48 in profits if you went wild with a 8192 community. That might be just the point at which your phone company or Internet Service Provider raises your bill.
Even though I only lose money on most of these communities -- because most people don't move to more expensive rentals, they don't put money in the tip jars for the land preserve, they don't even help other newbies that might make it all worth it -- I still have them because I've been devoted to them as a concept. I also think they do provide at least some flow of new customers. Although newbies are not helpless, dirt-poor subsistence farmers in RL, as I've explained, and I actually have people who land in SL and within a few days rent a $20 island parcel from me on PayPal because, you know, that's not even the price of lunch these days and doesn't even quite cover two movies a month without popcorn. Yes, stranger things have happened!
With the real-life recession and the Second Life recession induced by LL's own policies, I've had to add MORE dollar rentals. In fact, I have turned previously-fancy areas that used to sustain one or two mansions into dollar rentals. I've also added dollar-a-prim skyboxes and bed & breakfast because this is an experiment that I really enjoy doing because I can try my hand at decorating. If you can't have fun doing SL, you shouldn't be in business in it as it is so damn hard.
But at this point, for lots of RL and SL reasons, I'm reaching my limit of endurance to put up with the BDSM queen prostitutes with six-figure tip jars putting out 1500 prims on my 150 prim lot -- because they can. I'm tired of people who script vehicles and make tier-free RL money from SL or turn tricks chiseling me over a lousy $1.99 US a month -- and putting 6 of their alts or 3 of their no-show friends in a newbies rental -- because they can (although I often catch such alts because they are pretty transparent). I'm tired of people who get 6 reminders of their overprimming and keep putting out their garish high-prim RP lots on my cheap rentals -- because they can. More and more, these people aren't getting a 3rd chance, they're getting evicted. No one would expect otherwise.
So I am selling some of these and raising the price on others and keeping others "as is". I've though about adding "Payment Information on File" which is a way of threshing out the low-lifes. Because honestly, how do you pay for your Internet connection then? If you aren't willing to put a form of payment online?
Sure, people in Uzbekistan or even Brazil don't have internationally-recognized credit cards or they cost too much to maintain. And one way of permanently getting rid of a category of people who routinely overprim and grab as much as they can for free is putting on PIOF.
However, because this will also unfairly impact people who "deserve" cheap newbie rentals or even long-term rentals, I won't do it for now. It's too much trouble to maintain, for one, as legions of people run into ban lines and bitch at you.
I'd welcome anybody to provide me with DIFFERENT Mainland math. But DIFFERENT Mainland math may merely have another cash-out value (maybe euros are better to cash out?) or perhaps a different vacancy rate or something -- yet at the end of the day, I think most people will not argue with me. $1/prim rentals lose money for the rentals agent.