It came upon us pretty quickly—digital real estate is up for grabs on virtual platforms such as Decentraland and OpenSea. Both are places on the internet where consumers can now buy and sell digital assets such as music, art, fashion products, and now—real estate.
For most of us, the concept of valuing assets in the digital world is still pretty new. You might be wondering, what use could we possibly have for non-tangible real estate?
The first thing we’d need to understand is that as the metaverse unfolds, its users will start to develop identities inside of it (similar to what we see with avatars in video games). In the same way that these avatars need clothes to wear, they’ll also need places to visit in the metaverse. That’s where digital real estate comes into play.
What is the Metaverse?
After Facebook announced its plans to enter the metaverse, awareness about this new space has spread overwhelmingly fast. Virtually everyone on the internet has heard of the metaverse, but given its “newness,” few people understand how it actually works.
The metaverse can be best explained as an alternate digital reality where users go to work, participate in leisurely activities, and host digital identities. Combining elements of virtual and augmented reality to simulate real-life experiences, it’s essentially the newest version of the internet. (It’s also often referred to as Web 3.0).
The term itself, metaverse, has been around for many years. However, it only recently gained popularity due to the business opportunities that arose, following Facebook’s announcement.
One of those business opportunities is in fact, buying and selling digital real estate. These virtual lands will serve as places for our digital identities (or avatars) to meet. The expectation is that as more users enter the metaverse, there will be more of a need to utilize digital real estate.
Why Invest in Virtual Land or Real Estate?
Any real estate investor will tell you, ROI is at the heart of their motives. Whether they’re investing in a community-based project meant to create jobs in a disadvantaged neighborhood, or erecting a 50-story-tall skyscraper in NYC for commercial use—they’re expecting a return on their investment.
So, what’s the ROI in digital real estate?
Depending on what you intend to use your land for, there’s a multitude of opportunities for digital real estate investors. Those experienced in crypto trading are at an advantage, seeing as virtual land is bought and sold in cryptocurrency.
Investors can purchase a plot of land in the metaverse and build whatever they’d like, be it a performance venue to host music events or a co-working space to host business meetings.
To give a concrete example, Snoop Dogg is currently developing “Snoopverse” on the Sandbox, a virtual reality platform geared towards gaming and entertainment. Snoopverse is meant to be Snoop Dogg’s own virtual world within the metaverse. Earlier this month, a fan going by the name P-Ape purchased a digital plot of land within the Snoopverse for $450,000.
“I’m always on the lookout for new ways of connecting with fans and what we’ve created in The Sandbox is the future of virtual hangouts, NFT drops, and exclusive concerts,” says the rapper and entrepreneur of his newest endeavor.
Although intangible, property on the metaverse certainly has the potential to be profitable. In June of this year a piece of land sold for more than $900,000 in Decentraland, one of the most popular platforms to purchase digital real estate. The transaction was conducted in (MANA), a cryptocurrency that is a sidechain of Ethereum.
Another notable digital real estate transaction taking place on the metaverse this year was the $2.8 million purchase of virtual land in an upcoming fashion district by Tokens.com. Given the origins of NFTs and VR in the gaming world where users started to purchase clothing items for their avatars, fashion is a particularly promising industry to explore in the metaverse.
There are several virtual worlds in which you can start investing in. Decentraland is arguably the most popular for investors interested in real estate. The minimum price for land in Decentraland as of this week is 3.087 Ether, which is the equivalent of $13,675.
How To Buy Land in the Metaverse
Step 1: Get a Digital Wallet
You won’t be able to buy digital real estate in real-world dollars. You’ll need cryptocurrency. The first thing you want to do is set up your digital wallet so you can then purchase virtual land in the right coins. (Similar to how you would exchange dollars for REAL when visiting Brazil, or YEN when visiting China).
On Decentraland, the currency is known as MANA. On Sandbox, where Snoop’s Snoopverse is being hosted, the currency is known as SAND. You’ll need MANA to purchase land on Decentraland and SAND to purchase land on Sandbox. The currencies are not interchangeable.
Whichever currency you choose, make sure to write down the seed phrase you’re assigned when you open your wallet. Think of this as your “virtual bank account” information. You want to keep it close; memorize it if possible. Seed phrases are very hard to recover once lost.
Step 2: Choose a Buying Platform
Once you have your digital wallet set up, you have a few options when it comes to buying land. You can choose to buy property directly on a metaverse platform, such as Decentraland or the Sandbox, or you can go through a third-party platform such as OpenSea.
For first-time investors, it might be best to shop around on a third-party platform. OpenSea and NonFungible.com both allow you to shop around for virtual land parcels without having to continuously jump from one platform to another. Different platforms offer buyers varying price ranges and digital land amenities. It can be tedious to log-in and log-out of multiple platforms when assessing land.
On a third-party platform, buyers are also able to assess asking prices in their local real-world currency equivalent, which can make it easier to understand how much is actually being spent on a particular investment. This is especially important, given that every cryptocoin has its own value, independent of others.
The advantage of purchasing land directly within metaverse platforms such as Decentraland or Sandbox, is that you get a strong sense of what kind of amenities are around and who your neighbors are. This is probably the more favorable route to take once you’ve gained some experience as a digital real estate investor.
Step 3: Make an Offer & Close on Your Virtual Real Estate
In the real world, closing on a piece of property might be the most arduous part of the process. That’s not the case with digital real estate—at least for now. Once you’ve found a parcel you’re interested in purchasing, all you have to do is click on it and buy it.
Appraisals aren’t a thing in the metaverse, again, at least not yet. However, there might be opportunities to negotiate on price. For example, Decentraland allows you to put in an offer, which can be accepted or rejected by the owner.
As long as your wallet is funded, parcel is selected, and the price is decided upon, you’re ready to purchase. The transaction is recorded on your wallet and generates an NFT title to the property which is exclusive to you.
A few considerations…
It’s important to keep in mind that as exciting as it may be, the metaverse is still unchartered territory. Digital real estate investing is an extremely new form of investing and is rapidly changing.
A few months ago, you could own a piece of digital real estate for a few hundred dollars. Entering 2021, you need a few thousand just to get started.
There’s not enough transaction history on digital real estate deals to determine how the virtual land market will behave. Investing in it is highly speculative and the market is currently volatile.
That’s not to say you should be dissuaded from investing in digital real estate; it’s just important to note that there’s no price tolerance or determining levels of demand for such a new asset. Be mindful of how much money you allocate to this new venture.