I get this question a lot, and I can’t answer it definitively, because the answer is “it depends on what you want in SL.” Related to this are questions about buying land. Here are some factors that go into answering those questions for yourself. Caution: this involves a lot of math, and I am not a math guy, so you might want to check my assumptions and figuring.

There are two areas involved in these questions: premium membership fees, and land tier fees.

First, premium membership costs and benefits: the cost varies depending on whether you pay monthly, quarterly, or annually. I’m going to put everything into monthly costs to make sure we are comparing apples with apples, so to speak.

If you pay monthly, a premium membership costs $9.95 a month.

If you pay quarterly, it’s $22.50, which works out to $7.50 a month.

If you pay annually, it’s $72, which works out to $6 a month.

For that you get a) the privilege of owning land on the mainland, and b) a weekly stipend. As of this writing, if you convert from a basic account to a premium account you will receive L$300 per week.

According to the Reuters Second Life news bureau, the current exchange rate is US$1/L$273.40. That means that the stipend is worth US$1.10 a week. You would, therefore, receive the equivalent of $4.77 a month ((US$1.10 x 52 weeks) / 12 months and rounded).

Since “premium” is a membership level, it gets paid whether you own any land or not.

Now to look at land ownership a bit. When you buy land in SL, you actually have two payments to think about: the initial payment, which “buys” the land, and the monthly tier, which lets you keep the land (think of it as like fees to a homeowners association, or property taxes; because of property taxes in real life, you may think you own land, but you really just buy the right to rent it from the government).

With a premium membership, you can own up to 512 square meters on the mainland without paying any tier, so your only land ownership cost is the initial payment. For comparision purposes, let’s say you want to own 1,024 square meters. For this, Linden Lab will charge you US$5 a month over and above your premium membership in “tier fees.”

Differentiate tier fees from premium membership, though, because if you sell 512 m of your 1,024 in, for instance, January, and you don’t buy any more land in February, then you will only pay your premium membership fees in February. Premium fees get paid regardless, but tier fees only are charged on land you actually own. Caution: if you own land that puts you over 512 for even a day of the month in question, you will get charged the tier fee.

If you buy land from a private island developer like Anshe Chung, though, you don’t have to have a premium membership under current rules, and you don’t pay any tier to LL. When you buy from a private island developer, you usually pay less for the initial purchase than you will on the mainland as well

However, when you buy from a private island developer, you will be subject to the developer’s ownership rules, since as far as LL is concerned the developer STILL OWNS THE WHOLE ISLAND. If you don’t follow the developer’s rules, you can be kicked off your land with little or no recourse. This is an advantage or a disadvantage, depending on how you look at it. It is, in essence, zoning, and so carries the same benefits and disadvantages as zoning in real life.

If you don’t want a casino to go in next door, then it’s great. But if you want to build a different sort of house than the developer’s rules allow, it’s not so great. This just means you should buy carefully and pay attention to the rules.

You will also still have some kind of tier to pay even if you buy less that 512 square meters–it’s just paid to the developer rather than to LL. This is because the developer, in turn, has monthly maintenance fees to pay to LL in order to keep his/her island, and the amount will depend a) on how many parcels the developer wanted to sell and b) how much profit the developer wants to make.

Let’s expand these a bit.

First, how many lots? A lot of developers will not sell all the possible lots, electing to maintain green space and water to increase the attractiveness of the island as a whole. They may then use the saved prim counts to make the lots sold more attractive by selling them as “double prim” or some such.

If you are a developer and you sell every possible square meter of space on an island, for instance, you could sell 128 lots of 512 m each, which means your overhead would be US$1.52 per lot on islands purchased before Nov. 15, 2006 (monthly maintenance on those islands is US$195), dictating the minimum private tier to stay in the black.

But if you only sold 64 lots (keeping the other 64 empty for green space or water), you’d have to charge US$3.04 per 512 m to stay in the black, which would mean US$6.12 per 1,024–a little more than what LL charges for the same amount of space (US$5 for 512 beyond the basic 512), but with double prims AND no requirement of paying for a premium account.

This is a relative bargain in monetary terms. On the other side of the decision balance sheet are two considerations: it is harder to resell lots from private islands, sometimes almost impossible, both because of market conditions and because of it being dependent on developers’ record keeping (not always the case, but the very perception of the possibility may slow down the ability to resell), so if you’re speculating in real estate, this may be harder; and there are many more variables to be aware of compared with buying on the mainland. If you plan to buy some land and pretty much stay put (i.e., you’re not going to be flipping properties), then read the covenants carefully and go for it.

Second, how much profit does the developer want? Some take their profit just on the initial sale of lots (which leads to a higher initial price but lower monthly tier), while others will sell the lots cheaper and then make a little bit each month (which will lead to a higher monthly tier). The real estate market in private islands is also still shaking out from LL’s price change for private islands in November. Islands sold for US$1,250 before Nov. 15, but cost US$1,625 now.

Of greater import to ongoing costs is the fact that monthly maintenance went from US$195 to US$295 a month. Using the same scenarios as above, that means to stay in the black developers must charge at least US$2.30 per 512 m lot if they sell every lot or US$4.60 for such a lot if they sell only half their lots. That’s a range of US$4.60 to US$9.20 to own a 1,024 m lot.

Keep in mind these are hypothetical minimums. Developers typically are running a business, which means they have other overhead than just maintenance fees, so developers who charge more than this are not ripping off their customers. This analysis will just help you to get a feel for the factors involved.
LL will reconsider its land pricing structure after Feb. 1, 2007. That could mean anything, of course, from lowering prices to restructuring tier to raising prices. As a company, they have to stay in the black too.

When you pay for premium, of course, you get weekly stipend. That’s either L$400 a week or L$300 a week, depending on when you went premium (some earlier adopters are actually grandfathered in at L$500, but they are relatively few in number). Taking the L$400 figure, that works out to L$1,733 a month (52 weeks divided by 12 months–so it’s actually more than the L$1,600 that most people assume in comparisons) or US$6.30 a month–enough to pay private tier without having to go to your credit card to load funds, but “losing” US$3.65 a month compared to just putting in dollars when you need to.

You may begin to get a sense of just one reason SL makes a great educational tool. Figuring out all of this stuff exercises some reasoning abilities that carry over well into real life. It’s not just a matter of doing the math, but of figuring the relative values, i.e., what matters most to you? Liquidity, lower initial cost, freedom to do as you wish with your own land, limitations and predictability regarding the neightbors? All of this figures into the decision, including the degree of uncertainty about the future, not just the math.