Rumblings are being heard around investing and real estate circles about “the metaverse.” Everything from Hollywood studios to virtual skateparks are being built there to support real-world businesses, and even financial institutions such as JPMorgan Chase, HSBC, and Fidelity are carving out their own corners of the virtual world.
But what is the metaverse, and, more importantly, how do you make money there?
What is virtual real estate?
Digital real estate is exactly what it sounds like: real estate in a virtual world. The “real” part of “real estate” can be a bit confusing in this context since there’s not much real about it, but that’s not entirely true. Virtual real estate has many of the same properties as real-world real estate except that you can’t physically touch it.
The most important characteristics of metaverse real estate include:
- Uniqueness: What makes virtual real estate worth anything is that each parcel is wholly unique. No two lots will be located in the same space when it comes to distance from traffic sources or proximity to other virtual properties that might influence the number of visitors who pop by. In some platforms, other unique characteristics exist such as various types of tappable natural resources.
- Limited quantity: Although the metaverse is a huge space that could, in theory, be infinite, each platform that offers metaverse real estate limits the number of lots that are available to be bought or sold. That number can be from a few thousand to more than a million, depending on the platform, but the sweet spot seems to be between about 90,000 and 250,000. Just like in a neighborhood, each platform’s lots are limited-edition opportunities to join specific communities.
- Development potential: In the metaverse, anything can happen. When it comes to developing properties, that goes double. There is no strict planning and zoning (or gravity!), and you don’t need a lot of heavy construction to bring in utilities, so what you can imagine is what’s possible. Brands have created all kinds of experiences — from futuristic event spaces for otherworldly concerts to fantastic buildings that could only exist in a virtual world.
Just like with real-world real estate, digital real estate comes with proof of ownership. Rather than a deed, you’ll receive a non-fungible token (NFT) that acts both as a receipt for your purchase and a deed ledger. Over time, as a property is bought and sold, the transactions are recorded to that NFT, which is then passed to the new owner. This happens almost instantly using blockchain technology.
Is virtual real estate a good investment?
As with any kind of real estate, what is a good or bad investment is largely based on your plan for the property. If you’re trying to build a restaurant in the middle of a field next to the railroad tracks, that’s not a good investment even if it is property you can touch and stand on. Investment property must always be evaluated based on its highest and best use — whether it’s in the real world and the virtual one.
There are definitely some good investments to be had in the virtual world, but it’s not a game for speculators. Although there has been money made by flipping virtual real estate, it’s only a very small fraction of the real potential of the income that can be generated. After all, the growth of the platform where your real estate is located is vital to increasing the value of the property itself. If no one comes, there’s no value.
Metaverse landlords and property developers have been doing some pretty big business in the past year. In a May interview with Fast Company, Sam Huber, owner of metaverse property developer and management company Admix, disclosed that his company has been renting properties out to large brands for up to $60,000 per month, with profit margins of up to 70%, depending on the project and property.
So if you choose the right properties with a solid plan for their use, there’s plenty of upside. However, you can just as easily lose significant amounts of money if you choose the wrong properties in platforms that aren’t catching on at all or that become overwhelmed with flippers who have no interest in helping the community grow and ultimately tank it.
The metaverse and crypto winter
A special caveat needs to be added here about crypto winter. This is what crypto investors call their version of the bear market. Because digital real estate is based on NFTs and purchased with cryptocurrency, it’s considered a crypto asset. Due to that, as well as other global economic factors, the metaverse is experiencing a significant crypto winter. Like bear markets, crypto winters don’t last forever, but they can have major impacts for better and worse.
Right now, prices in many parts of the metaverse are significantly depressed due to the crypto winter. Consequently, some investors are using this time to pick up as many properties as they can so they’re poised to see massive growth when this crypto winter is over. Others are simply ignoring the fact that their properties are not worth as much on the open market as they have been since they’re making money off rental incomes or ticket sales or using the property as a part of their marketing.
Virtual real estate transactions in the metaverse
Transacting a real estate deal in the metaverse is a simple process anyone can complete in a matter of minutes. It’s a matter of three simple steps:
- Open a digital wallet. This is where you’ll store your digital money and your NFTs. It’s very important that you write down your key phrases in the order they’re given to you since they cannot be retrieved later if you lose them. If they’re lost, so is your wallet, and you’ll never see your assets again.
- Fill that wallet with money. You’ll need the coin of the realm you’re buying land in. For example, in Decentraland, you’ll need MANA to buy digital land. Properties will have different currency requirements, so make sure to check the property you’re interested in before you fill your wallet.
- Click “buy” and wait. Once you’ve got your money and you’ve chosen your property, it’s a simple thing to complete the purchase. Simply click “buy” where the property you’re interested in is offered, either through the platform’s own marketplace or a third-party website that lists multiple platforms’ properties such as OpenSea.io. Once you click, you’ll log into your wallet, the transaction will start, and you’ll be notified in just a few minutes when the verification and transfer has completed.
Which platforms are the best for investing?
Right now there are only a few platforms that seem like they will have staying potential. These are platforms that have several important factors in play:
- A Goldilocks number of lots: There have been some good platforms created that don’t make very good investments because there aren’t enough lots to help determine the fair market value of anything or to help create positive synergy between businesses operating on them. From my research, the best platforms have a minimum of about 100,000 lots. However, there are also platforms that way overdo it and have created millions of lots that will never be purchased all the way out. I think about 250,000 or so lots are the cap with the current traffic that flows to the metaverse. This is the prime buy zone.
- Democracy or something like it: The metaverse is still the Wild West of the digital world, and there’s nothing consistent about how these worlds are run. Some are governed primarily by terms of service, which give all the control to the platform developers, and others are governed primarily by a Decentralized Autonomous Organization (DAO). DAOs exist to give landowners and currency holders (essentially citizens who don’t own property) voting rights over the big things and the ability to elect representatives who take care of the little stuff. You want one in your metaverse platform as long as it’s a well-run DAO. Checking out the platform’s Discord community and DAO documentation can help you figure that out.
- A thriving community: Without a community, a metaverse platform is completely worthless. The value comes from the people (an important lesson to consider in other business ventures). If a platform is selling a lot of lots, but no one is moving into the world to explore or develop (or try to set world records for the most Elvis impersonators in one place), it’s not going to make it. The people create the staying power of a metaverse world, and, therefore, its value.
New platforms are popping up weekly as interest in the metaverse grows. Each must be evaluated on its own merits, roadmaps, and user base, as best as you can suss out. If you want a more safe metaverse play, look for one that’s already open and where you can explore the world to see how it works and how it renders to users.
Is there a future in the metaverse?
For investors who are interested in getting their virtual hands a little dirty, metaverse real estate can be a very profitable investment. However, you’ll really need to understand the platform(s) you choose to invest in and have a plan for development long before you click “buy.”
Remember that the true value of a metaverse platform is in its community, and, if the community is growing and thriving, more brands and businesses will seek out investors like yourself to help them set up in that world.
Keep in mind that metaverse real estate is a highly volatile asset and one that’s never guaranteed. It could lose all its value tomorrow if the users of a metaverse world decide they’ve grown bored with it and migrate elsewhere, leaving your platform a virtual ghost town.