Is Buying Real Estate in the Metaverse a Smart Investment?

With interest in cryptocurrencies, non-fungible tokens (NFTs), and the Metaverse rising, it was almost inevitable that investors wondered if they should take part in this promotion. After all, virtual real estate is a new and untapped type of real estate that has never been seen before. Getting started today could be like entering an early American land frenzy (except Metaverse properties ACTUALLY uninhabited) – the first of the newly staked properties are the ones that will make the most money.

However, since Metaverse properties are literally not real (even the NFTs used to prove ownership are virtual), can they really hold any value over the long term? The leap into virtual real estate is a huge leap of faith, both in terms of the platforms you choose and in the concept of the metaverse as a whole.

A quick summary: what is the metaverse?

If you’re reading this article, chances are you have at least a basic understanding of the metaverse, but in case you don’t, here’s a super simple explanation of what the metaverse is: The metaverse is a collection of multi -User platforms that allow users to interact in real time. Often times, they have a local economy that allows for buying, selling and trading on-platform objects or mining crypto coins.

Many of the most popular Metaverse platforms are “sandbox worlds”. That is, they are worlds that allow people to build anything they can imagine, within the confines of programming. One of these limitations, and what creates some value in virtual real estate, is that there are only a limited number of lots that can be bought for people who want to take their sandboxing very seriously. Most platforms still allow access without being a lot of owner.

Although the platform looks like a game and certainly can be played like a game, you can do anything you want in a virtual world. You can just log in to socialize, or you can attend special events like concerts with friends.

Image source: Getty Images.

What does it cost to invest in virtual real estate?

The price you pay for a virtual property is based on most of the same factors that you would use to determine the value of an actual property: location, lot size, existing structures, and demand for game play a big part in the valuation.

For example a lot on The Sandbox (CRYPTO: SAND) with asset ID LAND # 33316 sold for $ 13,140.81 on 12/8/2021, but when it was first sold on 3/31/2020 it only fetched $ 38.70. Similarly, is Decentraland’s (CRYPTO: MANA) LAND # 10889035741470030830827987437816582766476 was originally sold for $ 452.98 on 12/25/2017 but resold for $ 26,246.25 on 12/8/2021.

And these are completely normal tickets. More extreme examples would be The Sandbox’s top seller last week, LAND # 48766, which sold for $ 57,171, or Decentraland’s top seller, EST # 1965, for $ 758,250.00.

The graph below shows some of the basic stats from the platforms that are most actively trading virtual real estate in the week ending December 8, 2021.

platform	Total sales in the last 7 days	Sales Volume in the Last 7 Days (USD)	Average Sales Over the Last 7 Days (USD)	Unique sellers in the last 7 days	Unique buyers in the last 7 days	Total Sales Volume (USD)
The sandpit	2,182	$ 33,132,452.10	$ 15,184.44	796	1.306	$ 257,308,101
Decentralized country	339	$ 6,622,999.31	$ 19,536.87	111	227	$ 100,499,665
KryptoVoxels	81	$ 650,734.05	$ 8,033.75	56	24	$ 25,182,517
Dream space	48	$ 552,407.83	$ 11,508.50	33	19th	$ 16,870,014

Data source: NonFungible.com, as of December 8, 2021. Table by author.

The metaverse: buy or give away?

Venturing into the metaverse as a real estate investor is a whole different story. As you can see from looking at the data above, there is certainly a story to show that Metaverse properties can gain significant value over time, but there is also an equally good chance that a particular Metaverse platform can in the end a virtual ghost becomes town at any point for whatever reason – or for no reason.

Real estate in the Metaverse is an extraordinarily speculative investment. You need to absolutely believe that the platform will exist far enough in the future to cash out your investment and make a profit. It is certainly possible, but the metaverse concept is still so shaky that its members continue to struggle to define themselves in a consistent way.

Some of these platforms will almost certainly live on, but knowing which ones will make it and which ones will fail is not a guess right now. Decentraland was among the first and will likely remain a player for some time due to the high buy-ins, but that also makes it a very costly bet to take tickets there. On the flip side, newer areas like The Sandbox are super hot right now but it will be hard to tell if they will stay hot or if this is more of the hype driving prices than the actual longer term interest of users.

Unlike real-world real estate, people don’t need virtual real estate to survive every day. They don’t depend on having a roof over their heads or a place to grow crops or even a place to do business. They just don’t need it in the same way that we need planet earth. And while individual Metaverse platforms have limited the number of plots available, there is endless potential for new platforms creating a system that allows people to choose from limitless options.

It’s the difference between buying real estate when the earth is all you have and buying real estate when you can literally live on every planet in the galaxy.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.