As metaverse platforms continue to increase in popularity and unimproved virtual lands become more and more scarce, prices are going through the roof. A basic property that might have cost a few hundred dollars in Decentraland this time last year is now easily fetching $10,000.
With that kind of price appreciation, largely driven by a combination of demand and scarcity, many smaller businesses are understandably wondering if they're going to be left behind in the metaverse revolution (also known as "Web3"). Although renting space in popular metaverse platforms is still on the table, many see buying metaverse lands as a solid investment as well as a branding tool.
But how can small businesses get into the market when the market may demand tens of thousands of dollars of cash upfront that they simply don't have in the budget? The answer is simple: metaverse mortgages.
What is a metaverse mortgage?
At the most basic level, a metaverse mortgage is a loan to secure property in one of many platforms in the metaverse. However, it goes a bit beyond that. When someone applies for a metaverse mortgage through the most well-known lender, TerraZero Technologies, the company looks very intently at the business plan of the group asking for the loan. If the project has long-term potential for success in the space, and benefits the community where it will be built, they may grant the loan.
Currently, TerraZero is writing loans for just two-year terms, partly because the loans are very small by comparison to a real-world mortgage and partly because the metaverse real estate market is very much in flux and doesn't have a lot of dependable long-term data to back up current valuations. Although metaverse appraisers are trying to figure out how to get involved and what roles they'll be playing, in the present, loan approval is focused primarily on the business plans attached to the property being purchased.
Other metaverse lenders are in the process of coming online, but they are not yet writing loans, so it's hard to say if their models will be similar or driven by other factors.
How do metaverse mortgages work?
Metaverse mortgages work like most loans: You borrow the money, then you pay it back in monthly installments per the specific agreements you make. Because they are essentially shelf loans, or loans that are made in-house by the lender, terms like down payments and interest rates may be differ based on the borrower. Most require automatic payments via blockchain using crypto assets and things like smart contracts that automatically execute when a condition, like a specific day of the month, is met.
Unlike most real-world real estate loans, however, TerraZero and similar lenders will be holding the titles of the property in their own names until the owner has completely paid off the note. This is similar to a less common type of real estate contract available in many states known as "contract for deed.
In a contract for deed, the real-world real estate deed is held by the person making the loan (often the owner who is looking to sell the property), and when the property is paid in full, they sign the deed over to the buyer. The buyer, in the meantime, holds most rights to the property, including the right to create or destroy improvements; they just can't sell the place without the deed holder's permission.
So, in essence, a metaverse mortgage, of the type that is currently available, is a contract for deed for metaverse real estate.
Metaverse mortgages and their impact on virtual real estate
The idea of a metaverse mortgage is not new, nor is the way they're being executed, but they are poised to be massively impactful as time goes by. Right now, there aren't very many, but over time, as these things go, market pressure will increase as more people who couldn't get into the market prior begin to gain a foothold in it.
Because metaverse property in any given platform is a finite resource, regardless of what you may have read, the increase in access is also going to increase transactions because of unfulfilled demand that was just waiting for financing. Over time, of course, some companies will find that their business models don't work very well in the metaverse. Or, they may find that they aren't as interested in it as they thought they would be, and they'll sell their places to someone else.
Giving these smaller businesses opportunities to grow where they can while the metaverse is young only speeds up adoption of platforms by wider audiences. After all, you're not going to visit a metaverse platform with nothing in it more than once, but you will keep going back to one where there are things to do and see and buy.
When you're looking to invest in real-world real estate, property demand and community investment are vital. The same is true in the metaverse, and loans that can open these opportunities to more businesses only stand to stabilize and increase real estate values over time.