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Investing in real estate in the Metaverse: pros and cons

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

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

“My metaverse backyard is appreciating more than my real estate assets,” Aguilar said. “Real estate prices in the metaverse have been crazy.” 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 its plot in The Sandbox has increased by 1,400 times its original value.

What is actually the virtual property?

If the notion of virtual land is new to you, you’re not alone. While a quick swipe through Twitter’s encryption makes it look like all the major companies, brands, and celebrities are buying virtual property, the reality is that relatively few people are participating in the metaverse land race.

However, 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 head of the professional membership network, Janine Yorio, CEO of Republic Realm, a metaverse investment platform, explained exactly what metaverse real estate investment is for those who haven’t taken the plunge:

“Metaverse real estate is an NFT,” Yorio said in the podcast. “They’re a JPEG or [digital file that] points to a specific file that’s recorded on the blockchain, which is this ledger that keeps track of who owns [each asset]. In much the same way that if you bought land in a city, you went to the town hall and opened a drawer to find your act. Instead, you’re looking at the blockchain. ”

On a blockchain, you can look inside people’s wallets, Yorio explained. Each transaction is also the receipt or deed in the world of cryptocurrencies, unlike the real world where the two are distinguished.

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

And this indisputable property is tempting. Prices of digital properties in metaverse worlds like The Sandbox and Decentraland rose 700% last year, and rapper Snoop Dog has built an interactive metaverse (the “Snoopverse”) where you can pay as much as you would for a physical home to be its virtual neighbor.

But does location matter as much in the metaverse as in real life? Yorio argues that no, it doesn’t when you can just click where you want to go. Property values can fluctuate based on factors we are already used to – proximity to desirable places, prestige, digital charm “brake” – along with new dimensional limitations and advantages. If they look completely new and invented, it’s because they are.

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

Is location important in the metaverse?

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

“Different platforms are fixing it or trying to fix it in different ways,” huber says. “At one extreme, you have platforms where distance doesn’t matter at all, which is currently the case with Sandbox because you can just click in the area you want to go to and go directly there.”

The problem with this, Huber says, is that it becomes harder to determine value based on your proximity, for example, to Snoop’s home.

“If distance isn’t an issue, technically you shouldn’t have much more expensive areas than others because you can always get anywhere, even if it’s on the edge of the map,” Huber says.

The virtual world known as Somnium Space, for example, has a teleportation for this very reason, but it comes at a cost.

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

The idea of an NFT teleportation may seem a bit out there, but that’s the fun of The Sandbox, or any metaverse. Architects, developers, programmers, gamers, designers – and virtually anyone who loves Web 3 – enjoy building in these new digital lands because the limits of reality become as we define them.

“We don’t want to recreate the barriers of the physical world, such as distance and gravity in the digital world. We build [in the metaverse] to avoid it in the first place,” Huber says. “Some people might see it as an added value to being able to teleport,” he says, adding that others might see it as an “artificial scarcity” created just to get into the milking cow of the metaverse.

But the artificial scarcity of the metaverse doesn’t seem to stop people from joining in the fun. The Reddit community for the Ethereum-based Decentraland metaverse has more than 85,000 members discussing topics such as which luxury brands will be part of Metaverse Fashion Week, how to open storefronts to sell digital items, what is 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 into the metaverse real estate game, there are a few practical steps you can follow:

Choose a metaverse to buy and find out why

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

First, there’s what you call “asset-based valuation,” which is looking at the metaverse economy similarly to how we view physical real estate. This model requires researching how much metaverse properties sell on different NFT markets and understanding what makes property valuable in each metaverse.

For example, casinos increase the value of the property in Decentraland, Yorio explains, while a place near Snoop’s home in The Sandbox will have a premium price. 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 fewer properties are available, prices will be higher).

Popular metaverse platforms such as Decentraland, The Sandbox, Axie Infinity, Crypto Voxels, Somnium Space, and EmberSword, among others, have all published the total number of packages they intend to make available to buyers. This helps with simply assessing the supply and demand of each metaverse, but for a deeper analysis, there is more to consider.

Therefore, a second way of looking at value is through the lens of a venture capitalist. With this strategy, it’s more important to focus on metrics like the number of monthly users interacting in a particular metaverse, the types of companies that are building projects there, and what kind of return on investment a person can get from throwing down their dollars in the early stages of what could be the next virtual hangout space or virtual gaming community. Look for three main indicators of the dignity of a project, yorio says:

  • Traction
  • Team
  • Road map

How many people are talking about the potential 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 some examples that have made remarkable sketches from the lens of someone who thinks like a venture capitalist. For example, Star Atlas, a metaverse that “gamifies” the acquisition of virtual real estate, details its unique marketing plans on its website. Community building strategies include NFT posters, collaborations with music artists, and tiered rewards that make people excited to join.

Other projects, such as ethereum-based immersive platform, Wilder World, will work with influencers to achieve a similar hype-building effect. If you’re 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 costs

Whether you buy a metaverse property on the platform’s marketplace or on an NFT marketplace like 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 you buy 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, as well as take into account the capital gains or losses you may incur by exchanging one currency for another.

As for the actual price of the plots themselves, the costs vary depending on the economy of each metaverse. A small package in Somnium Space, for example, is going for 2,1167 ETH (about $6,362) on OpenSea at the time of writing this article in March 2022. This would entitle the buyer to 2,153 square feet of virtual land, with a maximum construction height of 33 feet. Meanwhile, Decentraland’s most expensive package was recently sold for over $2.4 million.

See pricing history

Thanks to the 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 (although, yes, metaverse real estate agents are becoming a thing).

Third-party platforms like OpenSea will most likely show your purchase history for any plot of land you’re looking at. View your price history so 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 potential hires of developers to help you codify your vision — or simply purchase the land for its future resale value.

You can also choose to buy properties with structures built on them, such as a house or billboard, or turn multiple packages into properties by connecting them together, which increases the value even more.

According to Yorio, there is more value in large areas of property connected to each other, and therefore one strategy could be to buy more affordable plots with the intention of combining them – but of course, the timing is all there.

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

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