Location, Location, Location: Investing in Real Estate in the Metaverse

Imagine a world in which your virtual backyard has a higher property value than the green, grassy lawn outside your real-life back door.

AccessTimeIconMar 23, 2022 at 4:24 p.m. UTC
Updated May 11, 2023 at 3:51 p.m. UTC

For metaverse real estate investors, the reality that property online will appreciate more than property in the real world isn’t too hard to imagine, says Armando Aguilar, a digital asset strategist who made the decision to cash out a portion of his crypto holdings to buy a physical house in October 2019 and later bought a lot in the The Sandbox, an online platform, in spring 2021.

“My metaverse backyard is appreciating more than my real estate,” Aguilar said. “Real estate prices in the metaverse have been insane.” Since making both purchases, Aguilar says the price of his three-bedroom, two-bathroom home outside New York City has appreciated two and a half times, while his plot in The Sandbox has surged 1,400 times its original value.

What actually is virtual real estate?

If the notion of virtual land is new to you, you’re not alone. While a quick scroll through crypto Twitter makes it seem like every major company, brand and celebrity is buying up virtual property, the reality is that relatively few people are partaking in the metaverse land rush.

Yet, as non-fungible tokens (NFTs) grow in popularity, the concept of metaverse real estate doesn’t seem so far-fetched. In a recent "New Rules of Business" podcast produced by the professional membership network Chief, Janine Yorio, CEO of Republic Realm, a metaverse investment platform, broke down exactly what metaverse real estate investing is for those who haven’t taken the plunge:

“Metaverse real estate is an NFT,” Yorio said on the podcast. “They are a JPEG or [digital file that] points to a specific file that is logged on the blockchain, which is this ledger that tracks who owns [each asset]. Much the same way that if you bought land in a town, you'd go to the town hall and open a drawer to find your deed. Instead, you're looking at the blockchain.”

On a blockchain, you can look inside people's wallets, Yorio explained. Every transaction is also the receipt or deed in the cryptocurrency world, unlike in the real world where the two are distinct.

“In the real world, you usually own something, but then there's paperwork to back it up. In crypto, owning it is part of the transaction. And once it's in your wallet, your ownership of it is indisputable,” Yorio said.

And this indisputable ownership is appealing. Prices on digital property in metaverse worlds like The Sandbox and Decentraland rose 700% last year, and rapper Snoop Dog built an interactive metaverse (the “Snoopverse”) in which you can pay as much as you would for a physical house to be his virtual neighbor.

But does location matter just as much in the metaverse as it does in real life? Yorio argues that no, it doesn’t when you can simply click where you want to go. Property values can fluctuate based on factors we’re already used to – proximity to desirable locations, prestige, digital “curb” appeal – along with new dimensional limitations and benefits. If they seem entirely new and made up, it’s because they are.

“Bringing a big brand or big project raises the value of the land around it,” says Sam Huber, founder and CEO of the metaverse advertising agency Admix. That is a notion we can wrap our minds around.

Does location matter in the metaverse?

In a digital world in which one click can transport you from a particular neighborhood in the metaverse to another, developers are also getting creative when it comes to constructing the new limits and possibilities of virtual worlds.

“Different platforms are solving it or trying to solve it in different ways,” Huber says. “On one extreme, you have platforms where distance doesn't matter at all, which is kind of currently the case on Sandbox because you can just basically click in the area that you want to go and go there directly.”

The problem with that, Huber says, is that it becomes harder to determine value based on your proximity to, say, Snoop’s house.

“If the distance is not a problem, then technically you shouldn't have areas that are much more expensive than others because you can always get anywhere, even if it's at the edge of the map,” Huber says.

The virtual world known as Somnium Space, for example, has a teleporter just for that reason – but it comes at a cost.

“It’s the token that they have,” Huber explains. “So you can ‘walk’ [where you want to go] for free or you can skip the ‘walk’ by taking a teleporter, which is also sold as an NFT.” Some people own the teleporter and can effectively charge people to use it – a nice little side hustle.

The idea of a teleporter NFT may seem a little out there, but that’s the fun of The Sandbox, or of any metaverse. Architects, developers, coders, gamers, designers – and basically just about anyone who loves Web 3 – enjoys building in these new, digital lands because the limits of reality get to be however we define them.

“We don't want to recreate the barriers of the physical world, like distance and gravity in the digital world. We build [in the metaverse] to avoid that in the first place,” Huber says. “Some people might see it as a value add to be able to teleport,” he says, adding that others may see it as “artificial scarcity” created just to get in on the metaverse cash cow.

But the artificial scarcity of the metaverse doesn’t seem to be stopping people from joining in on the fun. The Reddit community for the Ethereum-based Decentraland metaverse has more than 85,000 members discussing topics like which luxury brands will be a part of the metaverse fashion week, how to open storefronts to sell digital wares, what’s the price of MANA – the digital currency used in the Decentraland metaverse – and more.

How to invest in metaverse real estate

When you feel ready to take the plunge and get in on the metaverse real estate game, there are a few practical steps you can follow:

Pick a metaverse to buy in and know why

According to Yorio, who wrote a guide on metaverse real estate investing earlier this year, there are two distinct ways you can look at the prospective value of your metaverse property and therefore determine which metaverse platform to go with.

First, there’s what she calls the "Asset-Based Valuation," which is looking at metaverse economics similarly to how we view physical real estate. This model requires researching how much metaverse real estate sells for on different NFT marketplaces and understanding what makes property valuable in every metaverse.

For instance, casinos drive property value up in Decentraland, Yorio explains, whereas a spot near Snoop’s house in The Sandbox will be priced at a premium. You can also look at factors such as plot size, zoning requirements (e.g. how tall buildings can be) and the overall scarcity of the metaverse (if less property is available, prices will be higher).

Popular metaverse platforms like Decentraland, The Sandbox, Axie Infinity, Crypto Voxels, Somnium Space and EmberSword, among others, have all published the total number of parcels they plan to make available to purchasers. That helps with the simple supply-and-demand assessment of each metaverse, but for a deeper analysis, there’s more to consider.

Therefore, a second way to look at value is through the lens of a venture capitalist. With this strategy, it’s more important to focus on metrics such as the number of monthly users who interact in a particular metaverse, the types of companies that are building projects there and what kind of return on investment a person may get from plunking down his dollars in the early stages of what could be the next virtual hangout space or virtual gaming community. Look for three main indicators of a project’s buzz worthiness, Yorio says:

  • Traction
  • Team
  • Road map

How many people are talking about the prospective metaverse in the Discord messaging app, what teams are building and promoting the projects there and how solid are the plans to bring these ambitious ideas to fruition?

Yorio points to a few examples that have made considerable splashes from the lens of someone thinking like a venture capitalist. For example, Star Atlas, a metaverse that "gamifies" virtual real estate acquisition, details its unique marketing plans on its website. Community-building strategies include NFT posters, musical artist collaborations and tiered rewards that get people excited to join.

Other projects, like the Ethereum-based immersive platform, Wilder World, will work with influencers to achieve a similar hype-building effect. If you are buying in such spaces, it’s wise to think like a venture capitalist to decide for yourself if a project’s road map has legs.

Prepare for the costs

Whether buying metaverse property on the platform’s marketplace or on an NFT marketplace such as OpenSea or Non-fungible.com, there will likely be processing fees of between 0% and 5%, along with fluctuating gas fees for Ethereum-based projects.

If purchasing land in a metaverse that uses a type of cryptocurrency you don’t own, such as Decentraland’s MANA, you should also prepare to pay the normal transaction fees required to buy that new currency on an exchange like Coinbase, in addition to taking into account the capital gains or losses you may incur from trading one currency for another.

As for the actual price of the plots themselves, costs vary depending on each metaverse’s economics. A small parcel in Somnium Space, for instance, is going for 2.1167 ETH (about $6,362) on OpenSea at the time of this writing in March 2022. That would entitle the buyer to 2,153 square feet of virtual land, with a maximum build height of 33 feet. Meanwhile, the most expensive parcel in Decentraland was recently sold for more than $2.4 million.

Look at the price history

Thanks to blockchain’s transparent transaction history, you can make a well-informed decision when buying metaverse real estate without using a third-party real estate agent (though, yes – metaverse real estate agents are becoming a thing).

Third-party platforms such as OpenSea will more than likely show the purchase history for any parcel of land you’re eyeing. View the price history so that you can get an idea of how much the price has already appreciated or depreciated since it was listed.

Weigh the pros and cons

Just like buying a physical plot of land, you should consider the logistics of building on your plot, which would require purchasing more NFT materials and tools, along with potentially hiring developers to help you code your vision – or simply purchasing the land for its future resale value.

You can also opt to buy estates with structures built on them, such as a house or a billboard, or turn multiple parcels into estates by linking them together, which increases the value even more.

According to Yorio, there’s more value in large swaths of properties linked together, and so one strategy may be to buy more affordable plots with the intention of combining them – but of course, timing is everything here.

It’s clear that novice investors (and yes, everyone in the metaverse is basically a novice because it is so new) have cashed out big time on initial investments of less than $10,000. Like with every crypto strategy, however, it’s best to start out investing smaller amounts that you can afford to lose, at least until you understand the market enough to make more intentional predictions about what metaverses will make it and which ones will disappear into the ether forever.

This article was originally published on Mar 23, 2022 at 4:24 p.m. UTC


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Megan  DeMatteo

Megan DeMatteo is a service journalist currently based in New York City. In 2020, she helped launch CNBC Select, and she now writes for publications like CoinDesk, NextAdvisor, MoneyMade, and others. She is a contributing writer for CoinDesk’s Crypto for Advisors newsletter.

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