Investing is a huge give and take between risk and potential reward, but sometimes it feels a little bit more like gambling, especially when you're reaching into new and uncharted territory. Take, for example, the metaverse. Virtual real estate is the newest buzzworthy investment right now, but it's not new, nor is it without merit. In fact, if you have the stomach for it, I firmly believe you should be putting some money in well-chosen metaverse real estate.
If you know anything about me, you know I'm a cryptocurrency skeptic and a reasonably cautious investor by nature. I buy stocks in grocery store chains and food manufacturers but also in aerospace and electric vehicles. All of this is stuff that's reasonably grounded in known quantities and has enough data to provide predictable, long-term outcomes (even if some of the projects are a bit unproven).
So, when I'm telling you to buy real estate in the metaverse, it means something. Maybe it means that my cheese has slid off my cracker entirely, or maybe it means that it's not as speculative as it looks. There are a number of reasons I think that metaverse properties are where it's going to be at for investors in the next five years.
1. Commercial names are jumping feet-first into the metaverse
Nike (NKE 1.06%) is the latest in a string of big name brands that are stepping into the metaverse (no pun intended). Just this month, it announced a purchase of a company that makes NFT sneakers called RTFKT. Yes, that's correct. It makes sneakers that only exist in the metaverse.
Nike wants to make sure that every avatar in the metaverse is wearing Nike shoes, and it's going to go in big and fast. It's not waiting to see what other companies are doing because it has a solid understanding of what's driving these platforms and how it can reap the benefits.
For example, Gucci, a division of Kering, ran a limited promotion this summer where it created a digital version of the Gucci Garden exhibit and gave away and sold metaverse versions of popular bags and other limited-edition items on Roblox (RBLX 3.24%). Items were initially priced between $1.20 to $9 each, but some resold for as much as $4,100 of Robux, demonstrating both a primary market need and a secondary market interest in branded products.
2. Real estate developers are dumping millions into the metaverse
Virtual real estate developer Republic Realm just set a record by purchasing a $4.3 million piece of land in metaverse platform The Sandbox, breaking a record set a week prior by Tokens.com for a $2.5 million purchase of land in Decentraland. That's some walking-around money.
Given that these companies fully intend to create spaces like virtual malls and other rentable properties (where, for example, Nike might set up shop), and that both gave very serious consideration to how to determine the value of metaverse property, I have a hard time laughing this off as a weird kind of publicity stunt. These guys are serious as cancer -- and have the business plans to prove it.
They foresee a world where they can rent storefronts to companies who want to sell merchandise but not maintain any virtual real estate; rent virtual condos to people who want to visit the metaverse but not drop $12,000 on a lot of their own; or even design and build custom homes for celebrities who feel like a metaverse presence is good for their brand image but don't have the time to muck around with the messy bits.
3. Metaverse real estate isn't new
Although the hottest platforms in the metaverse are fairly new, they're far from the earliest examples of people getting into virtual real estate and making an absolute killing. Bloomberg covered Second Life's first millionaire, Ailin Graef, in 2006. She got in to Second Life early, spent two years building up virtual land holdings and developing custom avatars, and now invests heavily in technology groups with a fortune made in a virtual world.
Just this year, Second Life (started in 2003) reported a GDP equivalent to $600 million and over $80 million in cash outs to creators based on their investments in the community. The Second Life Marketplace offers a wide range of rentals but rarely any real estate for sale. Presumably, owners are making enough on those rentals, even at $4 or $5 a week, that they have no desire to sell. These transactions are largely handled through real estate groups native to the platform.
If a platform that almost no one has heard of from a time before social media has captured the hearts and minds of about 70% of Americans and can continue to bring in this kind of money this long after it debuted, surely a platform that's been built with all the lessons from Second Life in mind can be just as stable -- and potentially at least as profitable.