Virtual real estate investing: A guide

Virtual properties in the metaverse have gained traction from investors looking to expand their portfolios with an asset with high investment returns. Investing in these digital estates involves buying and owning properties like - virtual land, virtual buildings, or other virtual items through secondary marketplaces using cryptocurrencies. Owning digital properties can be an excellent way for individuals to monetize their assets by renting them out, selling them at a profit, or building virtual businesses. However, the benefits of owning virtual real estate go far beyond monetization - they are accessible investments, provide a sense of belonging in virtual communities, and are an excellent platform for developing innovative experiences. At the same time, these investments can be risky due to their speculative nature, dependency on platform popularity, and uncertainty around metaverse evolution.

What is investing in virtual real estate?

The metaverse is built up of digital property or land that exists as coordinates (or parcels) representing a digital version of real estate. Investing in these pieces of virtual estate means that users can purchase and own these digital assets. Users can buy these assets using cryptocurrencies across metaverse platforms like Decentraland, The Sandbox, Cryptovoxels, and Earth2 hold them as NFTs on the blockchain.

Virtual real estate also functions in some ways like real-world physical estate in that it can appreciate over time, making them a lucrative investment opportunity. The value of this virtual land is determined based on factors like location, the area's user traffic, and proximity to other key properties.

What are virtual properties?

• Virtual properties are assets that exist only in digital spaces such as metaverse platforms.

  
  

• They can include virtual land, buildings, and items.

  
  

• Virtual properties can be bought and sold using cryptocurrency and blockchain technology.

  
  

• They can appreciate in value just like physical real estate and can be a potentially lucrative investment opportunity.

  
  

Virtual properties only exist in digital environments like the metaverse. These properties can include:

Virtual land:

Virtual land can be purchased on metaverse platforms like Second Life and Decentraland. These digital properties can be bought, owned, and developed by building on top of it. In addition, brands and creators can benefit by building experiences, games, or event venues on these properties.

Virtual storefronts:

Virtual properties like storefronts and shops can also be bought in the metaverse. These commercial spaces are a great way for businesses and individuals to connect with customers in a new way to display and sell their virtual products.

Virtual buildings or monuments:

Brands or users can own digital buildings or monuments in the metaverse to host events, social gatherings, or workspaces.

Virtual apartments:

The metaverse also consists of residential spaces like condos or apartments that users can inhabit or rent out.

How do I start investing in metaverse real estate?

1. Research platforms: The first step to investing in virtual real estate is researching the various platforms and their real estate opportunities. A good way to conduct in-depth research would be gathering data on past sales and other metrics using websites like NonFungible.com or the LandVault platform.

   
   

2. Choose a platform: The metaverse platform you want to purchase a digital estate in depends on factors like risk tolerance and investment goals. Specific established platforms promise long-term growth, whereas newer platforms are a better option for high growth in the short term.

   
   

3. Create a digital wallet: To buy virtual land in the metaverse, you must set up a crypto wallet compatible with the platform you wish to purchase on. For instance, Decentraland supports wallets like MetaMask, Fortmatic, WalletConnect, and Coinbase Wallet.

   
   

4. Buy cryptocurrency: Once you have a wallet, you must purchase cryptocurrencies to make the transaction. Investors can use cryptocurrencies like Ethereum or Bitcoin for virtual land purchases, which users can buy via crypto exchanges like Coinbase and Binance. However, in some cases, you must buy a specific coin native to your purchasing platform. For instance, on Decentraland, MANA would be the crypto token used for purchases.

   
   

5. Choose between a marketplace or broker: Purchases for a virtual estate can be made directly via marketplaces or through an agent or broker facilitating the process. For example, you can purchase virtual real estate using secondary marketplaces like Opensea or by contacting LandVault. Conversely, you can also mint your land NFT directly on metaverse platforms like Decentraland, Cryptovoxels, and The Sandbox when they release new land drops.

   
   

6. Consider the land’s potential: Make sure that the virtual estate chosen is appropriate for your goals, be it using it as a rental or investing in it for future sale. Considering the potential land appreciation rate will be vital to making the right decision.

Why do people buy virtual real estate?

Purchasing virtual real estate in the metaverse gives users ownership of a unique plot of land that only exists in the digital world.

Investors are particularly attracted to making digital land purchases that can hold long-term value. As the metaverse evolves, these could appreciate delivering a lucrative return on investment. Some experts believe that virtual estate could become as valuable as physical estates. Landowners can also earn passive income by renting out properties they own to metaverse members and brands.

Virtual real estate also creates a wide range of possibilities for brands and creators to build and design experiences like events and games on top of it. This makes metaverse land an attractive place to develop fun, creative and engaging experiences with friends, customers, or players in the virtual world.

How does virtual real estate make money?

• Renting out property: Owning properties in the metaverse creates an opportunity to generate income by renting out property to businesses and individuals looking to sell their products, advertise, or host events. The Metaverse Group rented out a particular property for $2.5 million during the Metaverse Fashion Week.

  
  

• Selling virtual land: Highly sought-after property can be purchased and sold at a higher price, allowing landowners to profit by pocketing the difference. Some metaverse platforms have their own economies within which virtual goods can be bought and sold. Individuals can participate in this economy to sell virtual properties and real estate.

  
  

• Creating businesses: Virtual plots of land can be bought by entrepreneurs to set up their businesses quickly in areas where their target audience spends the most time in the metaverse. These businesses could be anything from virtual casinos or nightclubs to apparel stores, which can generate income from user engagement and transactions. Such ventures can also encourage users to purchase real-life products and services from a business’ physical store.

  
  

• Strategic partnerships and collaborations: Businesses, developers, and investors can collaborate to build more prominent and highly creative projects on metaverse land. These strategic partnerships could create shared spaces like business hubs or educational complexes that can help generate new revenue streams.

Benefits of virtual real estate

• Substantial return on investment: The metaverse is in a phase of rapid growth, and as users continue to flock to its digital spaces for social interactions, entertainment, and for work, the prices of land parcels are bound to increase, promising a high return on investment for landowners in the long run.

  
  

• Diversification of investments: Investing in virtual real estate is a great way to create a portfolio of assets with varying levels of risk. Virtual land is a riskier investment with higher returns, and balancing them against safer investments could help reduce risk exposure and ensure overall gains in the long term.

  
  

• Accessible to a broader range of investors: Buying virtual real estate has a lower entry barrier than physical real estate. Land prices being significantly lower than traditional property makes it more accessible for a larger pool of investors.

  
  

• Sense of ownership and community: As a landowner in the metaverse, you become an essential part of the platform’s community and have the freedom to do as you please with the land you own. Specific metaverse platforms allow landowners to participate in the platform’s development decision-making.

  
  

• Platform development: Landowners in the metaverse play a key role in developing digital plots of land that eventually help increase their market value. Investing in building more technologically forward and innovative experiences means land owners have the power to make these digital venues more appealing to multiple stakeholders like brands, celebrities, and creators.

Risks of investing in virtual real estate

• Speculative investments: The risk factor while investing in digital real estate remains high due to market volatility and uncertain regulatory environments. The stability of these assets depends on how the metaverse evolves, which is still highly uncertain.

  
  

• Risk of fraud: The metaverse and Web3 technologies are still facing growing pains with uncertain regulation and cybersecurity risks. For example, malicious activity driven by hackers and third-party attackers could put digital land and virtual properties at risk of being stolen.

  
  

• Dependency on unpredictable factors: The value of virtual land can take a significant hit due to factors such as changing consumer behavior and the evolution of new technologies. Emerging competition in the market could displace demand in other platforms as users rush to the more attractive option, causing a crash in investments.

  
  

• Fluctuating user bases: Certain virtual worlds are still in development and do not have established user bases. When a metaverse platform fails to achieve the expected success and popularity, it could lead to digital properties losing their appeal and depreciating.

Conclusion

Virtual real estate is a big part of metaverse platforms, and users have identified it as a lucrative investment and revenue-generating asset. Investors who understand its value and potential for growth are keen to lock in their money to own these properties. For instance, Decentraland sold a particular pot of land for a record-breaking $2.4 million in 2021.

These investments have democratized land ownership by slashing costs and barriers to market entry. However, to ensure that wise investments are made, users must research the best platforms to invest in, evaluate the potential for land to appreciate, and purchase directly on marketplaces or through a broker to get the best price. These assets cold have a great return in the long term and could be an effective way to diversify one's portfolio. However, like every other form of investment, staying cautious of existing risks due to the market’s uncertainty, volatility, and dependency on multiple factors will be vital to ensure that investments are successful.

Are you a brand or individual looking to invest in virtual real estate? We can help you select and purchase the ideal digital space to meet your goals while scaling and monetizing your project. Get in touch with us!