On December 8, 2021, a single plot of digital real estate sold for $4.3 million in a metaverse called The Sandbox.
As the metaverse kicks off, wealthy investors are already placing bets on virtual land.
To make sure you don’t miss out on the potential returns of the digital real estate boom, we put together this quick guide on how to get started with digital real estate investing inside the metaverse.
Table Of Contents
- What Is The Metaverse?
- What Is Digital Real Estate?
- Why Should You Invest In Virtual Real Estate?
- How To Invest In Digital Real Estate As A Beginner
What Is The Metaverse?
The “metaverse” is what some people are calling “the next generation of the internet”.
As we evolved from Web 1.0 to Web 2.0, we now come into Web 3.0 which is an internet where people will actually own digital assets, such as digital real estate, in a virtual world.
This is opposed to a Web 2.0 world where the content of the internet is essentially owned by the platforms that host the mostly user-generated content. YouTube owns the videos we submit. Twitter owns all of our tweets.
But the metaverse isn’t just about digital ownership. It’s about interactiveness and being fully immersive.
Most metaverse enthusiasts believe that the platforms will be either fully 3D virtual, or augmented reality.
Avatars will interact on digital land where they can also buy and sell digital assets.
What Is Digital Real Estate?
In a decentralized metaverse, property will be owned by the users themselves.
This is opposed to a corporate-owned metaverse sandbox where everything would be owned by Meta (formerly known as Facebook), for example.
Digital land is truly owned through NFT technology, which is verified through the blockchain (more shortly).
This land can also be improved upon as seen fit by the owner. A digital storefront can be created to sell goods in the metaverse, or merely decked out to host virtual parties and view NFT art galleries.
Alternatively, the land can be simply held onto while it appreciates in value, with hopes of a future sale and resulting profit.
What Does It Have To Do With Blockchain?
Blockchains, like Etherium, are used to verify and secure ownership of digital goods. These goods include real estate such as virtual lands, digital art, in-game goods, and digital currency.
Through NFT (non-fungible token) technology, owners of digital real estate are verified throughout the blockchain and true digital ownership can exist.
It’s what separates the difference between a copy and paste of a JPEG file, and being an actual owner of the digital art itself.
Why Should You Invest In Virtual Real Estate?
The primary motivation to purchase and invest in digital real estate would be ROI (return on investment).
With physical real estate prices hitting peak numbers due to supply chain issues and inventory shortages, many investors are looking to the digital world to invest their real world dollars.
This, combined with a lack of appetizing alternatives for investment (e.g.: stock market overpricing), people are looking for other ways to get a return from their otherwise inflating cash.
And it’s not just investors that are shelling out the big bucks. Fans, uber-nerds, and collectible addicts are finding the metaverse to be a playground of virtual swag.
A fan of Snoop Dog recently paid $450,000 to be his virtual neighbor in the metaverse.
Is There Any ROI In Digital Real Estate?
As of now, future returns in the realm of digital real estate are purely speculative.
But we can look at past performance to get a gauge on the increase of land prices in virtual worlds.
Decentralland is a metaverse that allows users to purchase virtual land in the form of a LAND (the cryptocurrency within Decentralland) parcel (10×10 square meters).
In January 2001, a LAND plot sold for around $2,000. Eventually, that number grew close to $150,000 for commercially-zoned plots in Decentalland (full article).
How Much Money Can You Make From It?
Although it’s much too early to tell the average expected return from both buy-and-hold and quick-flip digital real estate strategies, we can look to anecdotal stories.
For the most part, the people that have been profiting the most from virtual land sales have been the developers of the virtual land themselves (read more).
At the time of this writing, I was hard pressed to find any success stories of digital real estate investors making incredible turnarounds on their purchases, but I attribute this to the newness of the space, rather than a debunking of the asset class.
How To Invest In Digital Real Estate As A Beginner
Becoming a digital real estate investor boils down to four main steps.
1) Get A Digital Wallet
Real estate in virtual worlds is purchased using the cryptocurrency that is applicable in the metaverse which the land exists in.
For example, in Decentralland the currency is MANA. In The Sandbox, the currency is called SAND.
You store your crypto currency on a digital wallet, which can be thought of as a virtual bank account that is verified by the blockchain.
There are a variety of digital wallet types to choose from:
- Hosted Wallets exist on exchanges such as Coinbase. These require a 3rd party “custodian” which is in charge of the security of your wallet and its goods
- Self-Custody Wallets involve downloading wallet software to a device, after which the security and passcode safeguarding falls completely on you
- Hardware Wallets are physical devices that offer an extra measure of security as they live off your internet-connected devices
2) Choose Your Purchase Method
Option one to buy digital real estate is to purchase directly from the metaverse virtual reality platform itself.
For example, you can login directly to Decentralland, browse real estate options through the interface, and buy plots directly using your digital wallet using MANA.
Likewise, you could do the same in The Sandbox using their currency, SAND.
The main advantage you get from buying directly in the metaverse is the same as you would get from actually visiting a physical real estate property before you purchase it: you’re able to get a lay of the land, check out the neighbors, etc.
Which holds its obvious advantages for someone who wants to purchase digital real estate. Digital land before improvement is just a set of green flat pixels on the ground.
It’s only the surrounding environment that would give a newly flourishing piece of digital property its worth in a metaverse.
But many people find it more convenient to browse and compare real estate prospects using a third-party platform such as OpenSea or NonFungible.com.
Using a third-party platform gives you an easy-to-use interface that allows you to search and sort through various opportunities simultaneously without having to log in and out of metaverses one-by-one.
From a purely investor-focused standpoint, it makes sense. Why only look at real estate opportunities in one city, when you could compare them all at the same time?
3) Buy Your Virtual Real Estate
Once you find the right plot, it’s time to make your purchase.
When buying directly from the metaverse itself, a purchase can be as simple as clicking the “buy now” button of a piece of property that you like.
When buying from other owners, like traditional real estate, an offer is made which is presented to the owner through the platform.
If the offer is accepted, the transaction is made, and the digital land flows from their wallet to your wallet and an NFT-title is created in which you are the exclusive owner.
4) Keep It Secure
One of the biggest concerns over cryptocurrency and crypto-assets is security.
It’s both a blessing and a curse that the security of a digital wallet is in your own hands.
On one hand, getting hacked is virtually impossible unless your private key becomes compromised. You don’t have the security exposure of having your assets on a huge exchange which has a big target over its head.
That said, if you forget your private key, your wallet is lost forever. And there’s been many horror stories of this happening already.
How Much Land Is In The Metaverse?
According to Fortune, the cheapest plots of land in the metaverse are selling for $13,000.
Why Is Metaverse Land So Expensive?
Investing in virtual land is highly speculative and prices are fueled by media coverage of both celebrities and investors getting involved in the asset class.
Some say that we’re headed towards a bubble, and some believe that prices will go up with the popularity of the platform.
The rest is yet to be seen.