After the introduction of the metaverse in 2021, a lot of investors have started buying virtual real estate left and right. Should you do it, too?
Table of Contents
- What in the World Is Virtual Real Estate?
- What Is Virtual Real Estate Worth Today?
- Pros and Cons of Virtual Real Estate Investing
- How Does One Buy Virtual Real Estate?
- How Does One Sell Virtual Real Estate?
- Wrapping It Up: Is Virtual Real Estate Worth Investing In?
The metaverse is still relatively new and folks are still getting used to the concept of a vast virtual universe. At best, regular folks might have heard about it from Mark Zuckerberg or Satya Nadella. Zuckerberg sure got people’s attention when he changed Facebook’s branding into Meta and said he wanted to keep its focus on the metaverse moving forward.
Given all the hype surrounding the metaverse, every investor wants to know what virtual real estate investing will be like for them. In this blog, we hope to address some of the concerns surrounding the virtual real estate metaverse.
What in the World Is Virtual Real Estate?
Before we can truly understand what virtual real estate is, we must first know what the metaverse is and how it works. Once we have a clear idea of what it is, we can better understand why virtual real estate is all the rage among investors today.
To know more about virtual real estate, you must first be familiar with the metaverse.
Metaverse Defined
Because the metaverse is still quite a new and currently developing concept, it’s hard to pin a solid definition to it as of now. But most tech companies have somewhat given it a broader definition of three-dimensional virtual worlds with a greater emphasis on social connections.
Still confused? To simplify it, when we talk about the metaverse, we’re talking about a social and interactive platform rooted in the virtual world. Generally speaking, when tech companies refer to the metaverse, they are referring to a world that includes both virtual and augmented realities. Some people see it as what we used to call cyberspace, only a notch higher. Even if you use the terms interchangeably, the meaning won’t substantially change at least 90% of the time. This is because the term metaverse isn’t locked to a specific type of technology but rather how we interact with it.
Perhaps in the course of time, its definition will shift slightly (or significantly, depending on how it progresses) or become antiquated and replaced with a far more advanced concept.
What Can You Do in the Metaverse?
Companies wanting to get a piece of the action are jumping on the metaverse bandwagon to create some sort of digital economy where they can innovate, sell, and buy goods. This includes real estate. In a virtual world.
That being said, virtual real estate is a type of online asset that one can buy to either rent out or sell. It’s pretty much the same thing as buying an Airbnb property for profit in the real world. As long as it exists online and has a certain value attached to it, it is considered digital real estate.
Virtual land is usually bought on NFT marketplaces like Sandbox and Decentraland. Virtual property ownership is then recorded on the blockchain where the NFT is. This virtual property can be used to build structures like mansions, art galleries, or whatever else you have in mind.
For instance, award-winning rapper Snoop Dogg is in the process of developing his own virtual world aptly called Snoopverse. In it, he is currently building a digital version of his actual Diamond Bar CA mansion to hold private virtual concerts and parties in.
Related: Should Real Estate Investors Care About the Metaverse?
What Is Virtual Real Estate Worth Today?
For years now, pundits have been saying that the future is digital. Everything is headed in that direction and one very big proof of it is when the COVID-19 virus took over the world. Everyone was forced to retreat (or advance, depending on perspective) to the digital realm.
Companies and corporations have adopted and embraced the concept of remote work in their operations. Business folks and tradespeople took their wares online and started online shops to keep their heads above water. The real estate industry also quickly adapted by converting to virtual open houses and online transactions.
Also, the fact that cryptocurrencies and the talk-of-the-town NFTs have surged in popularity and value in recent months is only adding fuel to the proverbial fire. Investors are always looking for the next big thing to bet their money on, and it is now virtual real estate’s time to shine. If you’re an investor and you’re out to buy NFT or metaverse crypto, then you’ll probably also be interested in virtual real estate NFT.
However, the big question now on people’s minds is how much are virtual real estate properties actually worth right now?
Going back to Snoop, the West Coast rap-artist-turned-host paid a whopping $450,000 in December 2021 to buy real estate in the metaverse next to his virtual property. However, not all virtual real estate comes with that hefty price tag. Just like in the real world, virtual real estate has different values, depending on its location.
Related: Top 30 Locations for Airbnb Cash on Cash Return in 2022
The Sandbox and Decentraland
According to Forbes, The Sandbox is the largest virtual world today as far as volume transaction is concerned. It had about 65,000 transactions that amounted to $350 million in 2021 alone. Each parcel of land represents about 40km x 40km of virtual space where owners and participants can participate in different types of virtual experiences.
The second-largest virtual real estate platform is Decentraland, which saw around 21,000 transactions that had a total of $110 million last year.
For both worlds, the average amount invested in virtual land was $5,300. It started with just $100 per land in January 2021 and ballooned to $15,000 each in December 2021. The period between November 2021 and January 2022 saw 8,000 lands sold monthly at roughly $13,000 (or 3.5 Ethereum) per transaction.
What Can You Do With Virtual Land?
Given the way virtual real estate prices are skyrocketing, a lot of people are wondering why there are folks who are willing to pay ridiculous amounts for intangible properties.
Real estate in the metaverse, in a way, decentralized the focus on physical properties and allowed investors to expand virtually. For instance, in the Sandbox metaverse, land represents a piece of digital token. These parcels of land are then populated by gamers with games and assets. These assets, in turn, are traded as non-fungible tokens, or NFTs, in different marketplaces to enhance the gaming experience.
To put it plainly, virtual landowners can create digital billboards or museums to put those NFTs on display to create and enhance digital experiences. But one similarity it has with actual physical real estate income properties is that virtual real estate can also be rented out to designers of creative digital spaces.
Pros and Cons of Virtual Real Estate Investing
Before you can even buy virtual real estate, you need to understand what you’re getting into. Like all other investment vehicles, it comes with its benefits and drawbacks.
The Pros of Investing in Digital Land
As the months fly by and more and more investors are starting to reap the benefits of investing in virtual real estate, it is becoming increasingly obvious why people are jumping on the bandwagon.
Portfolio Diversification
Diversifying one’s investment portfolio helps one mitigate the risks that go along with investing. A smart investor knows the value of portfolio diversification and digital real estate offers investors a great protection option, along with actual physical real estate investing.
If you’re an investor looking to diversify your investment portfolio but you’re still on the fence with virtual land, you should consider investing in physical real estate instead. The real estate website Mashvisor is a good place to start when looking for the most profitable deals on investment properties.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo:
Profitability
The fact that almost everything is transitioning to the digital realm implies that digital real estate is here to stay. And just like physical real estate, the income potential that virtual land offers is tremendous as it scales up pretty fast. As early as now, it is already showing great signs of faster multiplication rates where compounding returns are concerned.
For those who are looking for a good passive income source, digital land is the way to go. Whether they decide to do virtual wholesaling real estate or renting out virtual land, it is a very viable income stream. It’s also a great way to transition into self-employment as it shows enough potential to become a good source of stable monthly income. That is if you have the right strategies in place.
Affordable Entry Amount
We’ve already mentioned how much the two biggest virtual real estate platforms sold. Since the concept is still starting out, there remain to be plenty of opportunities for investors to jump in and buy virtual land at very affordable rates.
The Cons of Investing in Digital Land
On the flip side, because it is a relatively new concept, investing in the metaverse also has several setbacks. Unlike buying rental property, investing in virtual real estate comes with the following risks:
Very Volatile
Because it is relatively new and purely digital, virtual real estate can be a high-risk investment. If things go sideways and something happens to your different acquisition avenues, your income will be greatly affected.
Technological Prerequisites
Now just because getting into the virtual real estate game is a lot cheaper than buying physical real estate properties, the technology required might turn off a huge chunk of interested investors. It will require you to have the latest technology (such as VR headphones, blockchain, and other similar technologies) as well as high-speed internet connections.
Tech-Savviness Required
Unlike buying a traditional or vacation rental property, purchasing virtual land requires a certain level of tech-savviness. While there is the option of going through third parties, those who want to do it for themselves will have put in the work to succeed in this type of investment asset.
For instance, digital real estate’s volatility is brought about by changes in technology and algorithms. Digital real estate investors need to learn how to read and understand new trends and use that understanding to make the most of the situation. If you’re not willing to put in the necessary hours to acquire the necessary skills, it is likely that you won’t reap the full benefits of virtual real estate investing.
Related: Everything You Need to Know About Digital Real Estate
How Does One Buy Virtual Real Estate?
While buying metaverse crypto is the easiest way to invest in the metaverse, investing in virtual land is another option for serious investors.
Virtual real estate can be bought on the Sandbox platform itself or on an external marketplace such as Rarible or OpenSea. While plenty of primary sales take place on Sandbox, it is getting harder and harder to acquire digital real estate on the platform itself. The best option for investors starting now is to do so via the secondary market.
In the real world, most people purchase properties with the help of mortgages and loans. This financing method is fast becoming popular in virtual real estate, too. According to BeInCrypto, metaverse mortgages are now available for the acquisition of digital real estate, with TerraZero Technologies at the forefront of digital mortgages.
The way it works is that those who are interested in buying virtual land use their NFTs as digital asset collateral if they plan on financing their digital real estate purchase. TerraZero is named as the temporarily registered landowner until the borrower fully pays back the mortgage. However, “deployment rights” are granted to the borrower and he or she may proceed to use the land as they see fit. Once the mortgage has been fully paid, the virtual estate or NFT is then transferred to the borrower.
Those who aren’t considering virtual mortgages can buy virtual real estate by setting up their digital wallet and picking an emerging metaverse. They should scout the land and look for a particular parcel of property they like. Once they have already found the ideal property that fits their needs, they can proceed to make the purchase.
How Does One Sell Virtual Real Estate?
Technically, selling virtual property is much like buying one. First, you need to own a property to sell and have a digital wallet set up for transactions. They are sold as NFTs on different platforms and virtual auctions and are paid for using cryptocurrency. Just like real-life real estate selling, you will need to consider the different fees that come with listing your NFT or virtual land.
Wrapping It Up: Is Virtual Real Estate Worth Investing In?
Now the question is, does virtual real estate really live up to the hype? Is it truly worth investing in considering it’s a relatively new asset type?
The truth is, buying digital real estate shows very promising results, especially since we’re already transitioning to a time when you can do almost everything in the digital realm. But since the metaverse is still a work in progress, investing in virtual land also comes with certain high risks.
The important thing investors should do, if they’re really serious about investing in the metaverse, is to perform due diligence. They must have a pretty good grasp of the world they’re getting themselves into.
However, if you’re the type of investor just looking to diversify your portfolio, we recommend going with the safer and more conventional real estate investing. Virtual real estate investing may seem exciting but at this point, we’re not yet sure if it’s just a curious fad or if it’s here to stay. On the other hand, actual physical real estate investing already has a proven track record with countless investors who can attest to its profitability.
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