Is Buying Real Estate in the Metaverse a Smart Investment?

With the rise of interest in cryptocurrencies, non-fungible tokens (NFTs), and the metaverse, it was almost inevitable that investors would start to wonder if they should be getting a piece of this action. Virtual real estate, after all, is a new and untapped type of property that has never existed before. Getting in today could be like getting in on an early American land rush (excepting that metaverse real estate is ACTUALLY unpopulated) -- the first to the newly staked-out properties are the ones who are set to make the most money.

However, since metaverse real estate isn't real in any sense of the word (even the NFTs that are used to prove ownership are virtual), can it really hold value for the long term? Jumping into virtual real estate is a huge leap of faith, in both the platforms you choose and in the concept of the metaverse as a whole.

A quick recap: What is the metaverse?

If you're reading this article, the odds are good you at least have some basic understanding of the metaverse, but just 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, they have local economies, allowing for buying, selling, and trading of in-platform objects or mining of cryptocoins.

Many of the most popular metaverse platforms are "sandbox worlds;" that is, they're worlds that allow people to build anything they can imagine, within the constraints of the programming. One of these constraints, and what creates some value for virtual real estate, is that there are only a limited number of lots that can be purchased for people who want to get very serious about their sandboxing. Most platforms still allow people access even without being a lot owner.

So, although the platform looks like a game, and certainly, it can be played like a game, you can do anything you want in a virtual world. You can simply log in to socialize, or you can participate in special events, like concerts with friends.

Image source: Getty Images.

What does it cost to invest in virtual real estate?

The price you'll pay for a piece of virtual real estate is based upon most of the same factors as you'd use to determine the value of a piece of actual real estate: location, lot size, existing structures, and demand all play a huge role in valuation.

For example, a lot on The Sandbox (SAND 0.43%) with asset ID LAND #33316 sold on 12/8/2021 for $13,140.81, but when it first sold on 3/31/2020, it only brought $38.70. Similarly, Decentraland's (MANA -0.07%) LAND #10889035741470030830827987437816582766476 originally sold for $452.98 on 12/25/2017 but resold on 12/8/2021 for $26,246.25.

And those are just normal lots. More extreme examples would include The Sandbox's top seller in the last week, LAND #48766, which sold for $57,171.00 or Decentraland's top seller, EST #1965, for $758,250.00.

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

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

The metaverse: Buy or pass?

Venturing into the metaverse as a real estate investor is a whole different story. As you can see from the peek at the data above, there is certainly history to demonstrate that metaverse real estate can gain substantial value over time, but there's also an equally good chance that any given metaverse platform is going to end up being a virtual ghost town at any given time for any possible reason -- or no reason at all.

Real estate in the metaverse is an extraordinarily speculative investment. You absolutely have to believe the platform will exist far enough into the future that you can cash your investment back out and make a profit. It's certainly possible, but the metaverse concept is still so wobbly that its members continue to struggle to define themselves in any uniform way.

Some of these platforms will almost certainly live on, but knowing which will make it and which will fail, well, that's anybody's guess right now. Decentraland was among the first, and it will likely remain a player for some time due to high value buy-ins, but that also makes it a very costly bet to take on lots there. On the other hand, newer spaces like The Sandbox are super hot right now, but it's going to be hard to know if they'll stay hot or if this is more hype driving prices rather than actual longer-term interest from users.

Unlike with real world real estate, people don't need virtual real estate to survive every day. They don't depend on it for a roof over their heads or a place to grow crops or even somewhere to put a business. They simply don't need it in the same sense that we need the planet Earth. And although individual metaverse platforms have capped the number of plots available, there's endless potential for new platforms to pop up, creating a system that allows for people to choose from limitless options.

It's the difference between buying real estate when Earth is all you've got and buying real estate when you can literally live on any planet in the galaxy.