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Virtual Real Estate and Physical Real Estate Are Actually Kinda Similar: Here's Why

By Kristi Waterworth – Updated Jan 6, 2022 at 12:36PM

Key Points

  • Metaverse real estate may not feel like a real investment opportunity for many people.
  • After all, it’s not “real” and can’t be touched or held.
  • But the truth is that it shares many of the same characteristics as real estate in the real world.

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At first glance, virtual real estate and physical real estate may not seem like they have a lot in common. But a look under the hood tells a whole different story.

There are a lot of ways to think about the metaverse right now. You can think of it as nothing but a bunch of silly and expensive games for kids who never venture out into the sunlight, or as a buzzy short-term investment that is destined to crash and burn, or you can look at it through a different lens: as a place to make real longer-term investments that have a lot in common with real-world real estate.

It may sound really out there on first glance, but metaverse real estate has quite a bit in common with real estate in the physical world. Metaverse real estate investments follow many of the same principles as corresponding real estate investments in the real world.

A city skyline inside a bubble, set over top a map of the Earth.

Image source: Getty Images.

Metaverse real estate is unique and immovable

Each parcel of real estate on planet Earth is, by definition, wholly unique. Even two lots sitting next to one another may have slightly different terrain, or the sun hits them slightly differently, or they have different resources underground. They are also generally defined by unique legal descriptions and recorded in a central database where everyone can see which is which and agrees that those different parcel names are different parcels.

The land itself is immovable. There's no way to move, say, Block 1, Lot 3 of Sunshine Acres to Block 6, Lot 12.  It's just not possible. The location is a vital part of the identity of the real estate. Without the location, it's somewhere else entirely.

The same applies in the metaverse. Each parcel is described uniquely and is located in a fixed place that can't be changed. In this case, it's important to also specify just where in the metaverse a lot is located, like Decentraland EST #1747 or The Sandbox LAND #47537 , but the same principles of non-homogeneity and immobility still apply.

Metaverse land can be improved and sold or rented

In real-world real estate, when a real estate investor acquires a lot, they generally do so with some kind of plan. Maybe they intend to build a mini- mall or a housing development, but they rarely intend to just buy the land and sit on it (although that certainly happens). Improving land in the real world is a great way to suddenly and permanently increase its value, especially when the improvements are in line with the property's highest and best use, or in other words, it's the best possible use of the land given the local economic conditions.

When we talk about metaverse property, often we talk about lots because that's the base unit of purchase. What you do with a metaverse lot once you have ownership is completely up to you. You can build a house, a commercial structure, an advertising billboard, or even something like an event space where you can sell tickets or accessory-type NFTs that are unique to that experience. You can improve the space.

And if those improvements are successful and well done, you can also sell the whole thing at a much higher price as an improved lot (often called an estate, though this term can also apply to multiple lots being sold together). Or, you can hold it and rent it to retailers or casual metaverse users looking for a different sort of experience. Just like real-life real estate, you can improve metaverse real estate to its highest and best use to generate a great deal more value from an empty lot.

Applying real-world real estate principles to metaverse real estate

Right now it can be tricky to determine valuations on real estate in the metaverse because it's kind of a constantly shifting situation, but most of the same rules still apply. Location is still everything, and utility is a close second. Knowing the difference between a good lot and a fantastic lot in the right metaverse feels impossible at first, but just take a look at who's setting up shop nearby and how their property is being used. Take a look at traffic flow and the sheer popularity of any given platform.

If you take it to a very basic level, the similarities between real estate in the real world and real estate in the metaverse run alarmingly parallel. The metaverse represents a whole new world (and a whole new series of economies) for so many people, even if it's not "real" by old-fashioned standards that require things like oxygen.

Kristi Waterworth owns Decentraland. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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