Tuesday, November 22, 2005

Everyone wants to be a land baron(esse)

The Linden propaganda seems to have succeded. If you have a look at some of the latest auction results one can get the impression that ambitous new players are entering the land market and prices are on the rise. The market is heating up. Many residents seem to find the job of "land baron(esse)" interesting.

Everybodys favourite Land BaronesseOf course ... with Philip touting Anshe (pictured to the right) as an example for a player making "six figures a year".

Seeing the rising prices at the auctions and the envy and hatred with which some residents look at the land barons made me curious and I did a little calculating.

The result? Alas, "getting rich quick" is not as easy as some may expect. At first look it seems that all you need is some investment money. Buy sims cheap at the auctions and sell them with a nice markup. Easy, quick! Or is it?

Take one of the auctions results for example:

A fresh sim was sold at some 1,600$. This is a rather high price but not especially unusual these days. The sim had some 61,000 sqm usable land (the rest is Linden protected). A quick calculation results in an avarage price of 6.7 L$ per sqm (at an exchange rate of 255L$/$) that the owner needs to break even. I am not sure if this is a price you actually can fetch for this type of land (I have not looked at it in detail). But 6.7 or 6.8 is a rather common price for nice flat land in the last weeks. So far so good.

But, oops, I forgot: the auction price is not the only cost connected with the buying of a sim. You have to pay tier for the additional land while you own it. Actually you have to pay tier for PEAK land ownership in an accounting period. So you have to add some 200$ to the price. Or more ... if you don't succeed in selling the land in the first month. (There are situations where the cost is less, but only if you have rather large holdings and can sell the land really, really fast. Possible but not easy. In effect it is hard to sell a sim without additional tier costs of 190 - 220$.)

OK, this added cost leads to a price of a little less than 8.5 L$/sqm to break even with the deal. Hmmmmm ... might be hard to achieve that price on the current market.

But wait! Didn't we talk about "get rich quick"? A little profit might be nice. I know "profit" is a dirty word for some. But no way to get rich without a profit;) So we add 100$ (a markup on cost of less than 10%). And please don't forget that it means work to parcel up a sim.

Please don't laugh. Believe me: to cut a sim into parcels of the sizes that are going best on the market (512, 1024, 2048 etc. and combinations thereof) takes time - especially when the sim contains oddly shaped protected areas. I talked to land barons and even when you take their words with a discount I estimate that it takes at least 3 - 4 hours of work to research, bid, take over, set up and list (in land sales) a sim. At a markup of 100$ this means you get 25$ per hour. Not bad but no way to "get rich quick".

Oops, and I forgot that if you want to get the hard earned money out at one of the currency exchanges you have to add more costs: fees (or "spread") on the exchange and PayPal commissions. And with all this added, said land baron has to ask more than 9.0 L$/sqm. And now it is beginning to get a little implausible. Prices like that may be achievable for some waterfront land or in the vincinity of a telehub. But this sim wasn't either.

Land is not exactly rare in SL these days
Land is not exactly rare these days in SL ...

This was just one especially striking example. There are more. And you don't have to look at the auctions with the high bids. Depending on the amount of sellable land it might even be hard to break even with the starting offer of 1,000 US$. Thats why the auctioning process for some sims seems to take forever to start. They are a bad deal even of you only pay 1,000. Selling a pure water sim for 6L$/sqm? Plain grass land for 8.5L$/sqm? Not easily. But some budding land barons seem to hope for exactly that. And there is lots of land on the market these days.

Looks like an overheated market to me.

By the way: contrary to the real estate business in RL its not possible for a land owner to simply wait out the market and speculate on rising prices. Tier payments would eat you up. Tier is the great factor which differentiates the real estate business in RL from SL. You have to be fast in here!

I am NOT saying, that you can't make money in the land business. Obviously you can. But it's in no way "easy" in the current market.

Finally one good tip for all wannabe land barons: as frustrating as it sounds, when you finally see that you outbid Anshe there is not allways reason to rejoice. It usually means that you made a bad deal;) (If you don't have insider information about future telehubs or such). She is very experienced in estimating market prices, has a better cost structure made possible in part by larger volume and might get better prices for her L$ at her own currency sales. At auction prices where she still makes a profit, a smaller land baron is already in the red.

If you are looking for a quick and easy way to get rich - maybe you better start looking in another direction.

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