10 Reasons I'm Still Not Buying Virtual Real Estate

The new virtual world, dubbed the metaverse, has taken the real world by storm. Over the past few years, interest and participation in the metaverse have increased tremendously -- now with big-name celebrities and large corporations snagging up virtual real estate left and right. Even Facebook rebranded itself to Meta Platforms, based on the belief that the metaverse is the path forward.

But there are a lot of reasons why investing in virtual real estate may not be the right move for everyone. Here are 10 reasons why I'm still not buying virtual real estate.

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Purchasing virtual real estate means you are buying a digital asset in a virtual platform, in this case, the metaverse. That alone isn't a deal-breaker as plenty of virtual assets hold value because of the service they provide online.

However, buying virtual land in the metaverse is different because you are relying on the metaverse to stick around, which may or may not happen. Right now, virtual real estate is a purely speculative play, making hedging risk extremely challenging.

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The number of metaverse users increased 10x from 2020 to 2021. This is a huge jump, but it still only equates to about 50,000 users in Web 3.0. The growth and value of the metaverse are reliant on increased interest for real estate in the metaverse, which is hardly guaranteed.

Having people join a social platform is very different from participating and spending money in a virtual world. Although it's clearly growing in popularity, I think the idea of the metaverse will be a hard sell for the average American.

The metaverse is hardly the first virtual world to be introduced. Second Life is arguably the most recent and closest virtual world to precede the metaverse. And it boomed and busted in a matter of four years, just before the Great Recession.

Its failure could have been poor timing or lack of technology advanced enough to see it succeed, among a slew of other challenges, but there's really no reason to believe the metaverse will be any different.

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Cash isn't king in the metaverse. Cryptocurrency is. Cryptocurrencies like Ethereum, as well as platform-specific currencies -- like SAND, used in the popular metaverse platform Sandbox, or MANA, used in Decentraland -- are the primary ways to purchase virtual real estate. That means, if you don't have a sizable stockpile of cryptocurrency already, it's another barrier you have to work through to start purchasing.

Right now, there are still a lot of gray areas when it comes to the laws in this new virtual world. Real estate agents, for example, are popping up in the metaverse. They offer their services to help customers find their ideal properties in one of the many virtual worlds and navigate the sometimes complex workings of starting, managing, or transacting with cryptocurrency.

Yet, because this virtual reality isn't legally required to follow the same laws as traditional brokerage or investment firms, there's little recourse if something were to go south.

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2021 saw over $500 million transacted for virtual real estate. Huge corporations are pouring a ton of money into developing their footprints in the virtual worlds, even leasing space for rent like you would in the real world.

But a lot of money flowing into an investment doesn't necessarily mean more users will buy into the idea. Survey respondents seem to be giving mixed signals when it comes to the future and interest in the metaverse, with a lot of Americans showing a lack of interest.

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Thanks to rising inflation and rapidly increasing housing costs, people are tightening their budgets and spending less on things like virtual real estate and virtual reality (VR). When people are hard-pressed for money in the real world, they are far less likely to spend money on things outside of that, such as virtual real estate.

Real-world real estate is driven by supply and demand. On earth, there is only so much land to develop. But that's not the case in a virtual world.

There's no reason new platforms or more plots of land couldn't be created to offer new prime real estate opportunities that mimic other platforms and create an infinite supply. Without demand driving real estate values and a realistic cap on how much supply there can be, there's no drive for the value of real estate.

ALSO READ: Investing in Physical vs. Virtual Real Estate: 9 Key Differences

Operating a digital world as complex and vast as the metaverse requires a lot of power, not to mention the energy effort that goes into mining the cryptocurrencies used to invest in this world, and environmental impacts are a growing concern.

A lot of tech companies are making massive moves toward more renewable energy, reducing their environmental impacts. But for the metaverse to scale to the size many hope and project is possible, its energy input will need to be addressed without doing serious damage to our environment.

Plots of land in the metaverse have seen values increase 10x and beyond, going from $1,000 to as much as $13,000 today. While that's certainly an incredible return in a very short period of time, it's extremely risky.

Rather than risking their money in speculative investments, investors can participate in the real-world real estate market, which can offer solid double-digit results and long-term cash flow opportunities from rentals, without the risk.

For example, real estate investment trusts (REITs), a popular investment class in the world of real estate, provided a 41% return in 2021. That's one of the highest on record -- all without the speculation or hassle of owning assets in a virtual world.

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I realize many people are making a ton of money in the metaverse right now. This could be a short-lived opportunity or, if the metaverse becomes as big as many believe it will, a millionaire-maker opportunity.

Since I'm not a huge risk-taker, I'm willing to miss that big opportunity, putting my money into safer, more solid investments with proven track records and clear drivers for long-term demand instead.

I'm aware that my lack of risk-taking on this front could mean I'll miss out on triple-digit returns by investing today, but it also means I won't lose my money if it doesn't pan out.

For more risk-averse investors, I suggest waiting until the metaverse's future and role in our world become more "concrete," sticking instead to brick-and-mortar real estate investing in our real world. There's no shortage of opportunity there.

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