If you had asked investors about buying land that does not exist in reality a couple of years ago, you would have been heavily ridiculed. However, after Facebook changed its name to Meta, and is talking about building its digital universe. Metaverse has gained a lot of attention as well as a spike in digital real estate investment.
Powered by cryptocurrency metaverse is one of the hottest attractions amongst people. It is a new trending topic that everyone is talking about from millennials to acclaimed real estate investors. With its dawn, real-world businesses are being shifted to a digital platform, including the real estate industry.
A part of SandBox Metaverse Map showing parcels of lands bought
Currently, there is a huge rush to purchase virtual land in the metaverse. Several celebrities and companies have purchased land parcels on several platforms worth millions of dollars. Besides owning several parcels of land, the famous rapper Snoop Dogg is also developing his own Snoopverse on the Sandbox platform. Recently someone paid a whopping $450,000 to buy a plot of land near Snoop Dogg to be his neighbor in the metaverse. Brands like Gucci, Warner Music, Atari, and others have also purchased lands in the metaverse.
However, despite all the interest and land grab rush traditional investors are still having a tough time wrapping their heads around the idea of investing in digital real estate. The lack of knowledge about metaverse and virtual lands/properties are making investors a bit skeptical.
In this blog, Lilypads simplifies the concept of digital real estate in the metaverse and helps you understand how to get started with investing in it.
What Is Digital Real Estate?
The pandemic has shown us the importance of technology. As a result, there has been a rapid increase in the implementation and development of technology in every business. Although Digital Real Estate is not a new concept, its popularity and implementation have been reintroduced by the recent popularity of Metaverse and NFTs. Because of this reason investors haven’t been able to fully grasp what digital real estate in the metaverse means.
Digital Real Estate refers to digital properties that happen to exist only in the virtual world. A digital property works similarly to real estate investment, which involves the purchase and sale of virtual properties for profit. And just like different real estate asset classes there are various types of digital real estate which are:
These are the oldest and most popular types of digital real estate. They are a good source of passive income. Though it is the cheapest investment option in digital real estate, it takes a lot of time and effort to get the most out of your investment.
Domain names are texts that allow us access to that particular website. There are millions of websites out there with each having an individual name. A domain name is available for purchase from domain registries. This investment type is very volatile since most domain names are likely to generate income at all.
Unless you are a caveman, you must know the importance of mobile applications. Apps are a unique digital asset that can turn developers’ or investors’ creations into profits.
- Digital Products
As technology advances, everything is now available online. Online retail sales are growing day by day and are forecasted to hit $5.4 trillion globally by the end of this year. The digital investment includes products like memberships ebooks, online courses, etc.
- Virtual Land & NFTs
And finally the most important asset of all. Blockchain-based technologies such as virtual real estate and NFTs have made us rethink the way value is managed. NFTs are non-fungible tokens that represent unique products existing in the virtual world only. This could be anything from virtual land, properties, arts, or an item of significant value. Virtual lands are one of the most appreciating digital real estate assets.
Due to its high returns and performance, we will focus on virtual land and virtual property as the only asset type of digital real estate.
Digital real estate investing allows you to own virtual lands by purchasing the plots that exist on the blockchain. As a result, these virtual assets are secured as non-fungible tokens (NFTs) in your digital wallet. To put everything in simple terms, digital real estate is your everyday real estate (virtual properties) but on a digital platform.
Metaverse, the new digital universe is the next evolution of technology. It is an upgrade of the present internet where you can interact with digital world objects in a virtual reality platform. In this case, it is interacting with virtual real estate which acts the same as a real-world property.
The metaverse platforms have plots or virtual lands that have similar features and characteristics that of real-world lands. Based on factors like location and neighborhood, demand, and supply, the prices of these virtual lands vary accordingly. In the metaverse platforms, these plots are available in limited quantity which makes them a good choice for investment.
Why Choose Digital Real Estate As An Investment?
While real estate investors may find it difficult to comprehend buying intangible assets, Investing in digital real estate has the same benefit as that in the real world. Digital real estate holds the same value in terms of returns on investment, probably more favorable than actual investments.
Investment in the virtual world is more economical and easy when compared to the real world. In the metaverse, investors do not need to worry about property construction or maintenance. All you require is capital for purchasing the plots or lands.
Two important factors make a virtual property attractive to investors.
Firstly, just like real land, virtual land is also limited. Powered by crypto, and a huge rush for buying properties in the metaverse, and being limited in supply makes it a good appreciating asset. Therefore, owning a virtual plot is highly profitable for the future.
For example during Decentraland’s first auction of digital real estate in 2017, a parcel of land sold for $20. Whereas fast forward to today with the promising outlook of metaverse, many digital real estate companies have started investing in virtual land properties. Republic Realm purchased a parcel of land in Sandbox metaverse platform for a whopping $4.3 million in November 2021.
Secondly, each plot of land in the metaverse is a unique parcel secured by an NFT. In the metaverse, transactions are done on the blockchain. Therefore, if you buy a virtual property that is an NFT, you’re signing a deed or proof of ownership for the unique virtual property. This guarantees the ownership and allows you to flip, lease or resell the property in the future.
Moreover, investing in digital real estate is a good way to diversify one’s portfolio. In a world of rapidly advancing technology, the metaverse is the future of internet technology. Thus there is doubt about the future of digital real estate. On top of that, the returns of digital real estate are enormous which makes digital worth your investment.
However, since this is a relatively new field, most investors do not know how to buy digital real estate, which brings us to the next question.
How To Buy digital real estate property in the Metaverse?
It is not complicated to buy and sell properties in the virtual world. Just like any normal investment, metaverse investments follow the same procedures. Purchasing a virtual property is done the same way you’d carry out crypto transactions i.e on the blockchain. Every transaction whether it is virtual property or NFT is carried out on blockchain which has a unique code. This unique code acts as proof of ownership or rights to use the purchased land.
Steps to buying a digital real estate property
- Create a digital wallet
Your printed money is of no use in the metaverse. Every transaction takes place via cryptocurrency. Therefore the first step involves creating a digital wallet and storing your preferred choice of cryptocurrency.
Moreover, you need the right type of crypto based on the platform you are using. Each metaverse platform has its cryptocurrency. For example, Decentraland uses ETH (Ethereum) or MANA, Sandbox uses SAND. And while choosing crypto make sure to note down the seed phrase assigned when opening a wallet.
- Choose a metaverse platform and the Land
Once you’re done setting up your wallet, the next task is to choose from the several metaverse platforms. However, two platforms are mostly used- Decentraland and Sandbox.
Or you can use third-party platforms like OpenSea or NonFungible.com. Third-party platforms lets you browse virtuals lands and parcels without having to switch from one platform to another. Furthermore, third-party platforms let buyers evaluate the prices of virtual properties in real-world currency.
However purchasing directly from metaverse platforms lets you have a strong understanding of the amenities, location, and neighborhood of the virtual property.
Just like in the real world, the better and more popular the neighborhood, the higher the prices of land/parcels.
- Link your wallet
Once you’ve selected the land parcel of your choice and plan on closing the deal. You’ll need to confirm your purchase by connecting your wallet to your account. Once done, your virtual property will be transferred to your wallet making you an official owner of virtual real estate.
- Lending in Metaverse
Like real estate, metaverse properties are also set at a very high price which is constantly increasing. Therefore purchasing such high valued digital assets can be difficult for small investors.
With Decentralized Finance(DeFi), investors can lend and borrow against collateral like NFTs or in this case, virtual real estate. Therefore, anyone can lend crypto assets since transactions are automated through smart contracts, which means there is no credit check required.
Recently TerraZero Technologies facilitated the first-ever mortgage in metaverse to help a client purchase their virtual property in Decentraland.
Although there isn’t much room for negotiations in virtual real estate investment, Decentraland gives you the option of placing an offer price before purchasing. It all depends on the owners to accept or reject the offer.
Pros and Cons of Investing in Digital Real Estate
- Digital real estate is easily accessible as there are no restrictions or fees required to enter.
- You can buy and sell properties from anywhere around the globe
- The demand and rush for virtual properties has led to driving up sales resulting in high ROI
- It does not require any agent or broker to show you around, cutting down the cost of commission fees.
- A virtual property in the metaverse doesn’t require operation or property maintenance costs.
- Investors get various investment options in other forms of digital assets like social media accounts, digital products, etc.
- There is no control or regulation which leaves doors open to manipulation and extortion.
- Since everything is based online. It is prone to cyber threats and hacks.
- Requires hi-tech tools and gadgets like VR glasses to interact with the virtual world.
The Lilypads Bottomline
Although relatively new, the metaverse is the future. The huge demand and high appreciation are proof that digital real estate is money rich. Therefore, tapping into digital real estate can be an excellent investment choice for traditional real estate investors. But investors must keep in mind that this is still at an early stage and the market is highly unpredictable. Regardless of how you feel about the metaverse, it has become a significant part of the Internet and is here to stay.