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3 Problems With Buying Land in the Metaverse

By Kristi Waterworth – Dec 22, 2021 at 10:30AM

Key Points

  • The metaverse holds a lot of potential for investors who want to be on the cutting edge, but it’s not without risk.
  • The current metaverse market is limited but growing.
  • When a virtual world fails, you don’t have anything left to show for it.

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Although the metaverse represents a huge opportunity for investors, there are also problems with investing there.

The metaverse is absolutely the most exciting thing to have happened to investors this year, filled with ample opportunity for people who get in at the right time. No matter what sort of real estate investor you happen to be, there's a wide-open field waiting for you, from the virtual equivalent of short-term rentals to buy-and-hold property investment and even commercial leasing.

The virtual world has the potential to be an oyster for so many people. But that doesn't mean that the metaverse is a safe bet, nor is it void of problems. For all the positives coming out of the metaverse, there are definitely some issues with virtual real estate that you should be aware of before diving in.

A stylized globe is in the center of the frame with the word metaverse in front of it.

Image source: Getty Images.

1. Metaverse properties are still a niche interest, with a limited market

This may be the most important thing to keep in mind when dealing with metaverse real estate. It's absolutely a niche market, though one with a very passionate fan base. Just like developers who do nothing but build mega-mansions, you have to realize that your market is small and may remain that way. There's nothing wrong with that, but your investment strategy should reflect this.

For some numbers, as of Dec. 21, 2021, reported a total of 128,902 sales during the prior 365 days for metaverse properties (this also includes avatars). By comparison, there were 5.64 million existing homes sold in 2020, according to the National Association of Realtors. However, there are still virtual real estate parcels selling for $1 million, and more big brands are getting involved almost daily, so it's hardly a dead market.

2. If a metaverse platform folds, your investment fails with it

No one wants to think about their investment failing, but there's always risk with investing in anything, and we might as well talk about the elephant in the room: The risk with metaverse real estate is considerable, and worse, if a metaverse platform folds, your investment just disappears.

Unlike with real-world real estate, where you can always fall back on the fact that you still have this piece of land you can touch and stand on, a metaverse property can disappear entirely if the platform fails financially.

Members may have voting rights when closure is an option, but if there's no money left to keep the platform running, there's nothing stopping the person paying the bills from simply pulling the plug. But before you let that worry you too much, remember that Second Life, one of the earliest metaverse platforms, has been in operation since 2003.

3. The metaverse is actually not great for the real world

The metaverse itself is an electricity- and computer-intense simulation of the actual world, but it's easy to forget this while walking around in it. And although metaverse platforms are trying to get greener with tighter, smarter programming, the cryptocurrencies that power them aren't trying quite so hard.

Bitcoin mining consumes approximately 91 tera-watt hours of electricity, which is more than the entire country of Finland (population 5.5 million) and represents approximately 0.5% of the world's power usage. That means a lot of pollution from creating electricity, more carbon in the atmosphere, and so forth.

The good news is that you can help with this by buying carbon offsets for your investments in the metaverse or use your real-world voting power and voice to lobby for more environmentally friendly ways to generate electricity, which will help minimize the impact of the metaverse on the physical world. Every little bit helps.

The metaverse can be a risky investment, so choose your platforms wisely

It's always hard to know which metaverse platforms are going to be big hitters and which are going to fizzle out, especially when they're just being established. You can potentially make a tidy sum if you manage to pick the next popular platform, but you can also lose a lot of money if you're not paying attention.

There is still plenty to be made on established platforms, so don't let their popularity scare you away. Although you won't see thousand-percent returns on your investment in places like Decentraland or The Sandbox, you can still realize steady returns, much like what you'd earn in the physical world's real estate market.

Kristi Waterworth owns Bitcoin and Decentraland. The Motley Fool owns and recommends Bitcoin. The Motley Fool has a disclosure policy.

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