Metaverse Real Estate 103: Buyer Beware

Metaverse real estate is arguably 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. 

Investors are now paying millions of dollars in return for land that exists only in 3D virtual worlds. With the race heating up, crypto enthusiasts, tech followers and prospective metaverse users are being drawn in to snap up a piece of digital properties.

The surge in the popularity of the technology has meant big business. The virtual real estate industry is already pulling in big numbers for developers and sellers – and the market is only getting bigger. Metaverse property prices rose 700% in 2021 and the overall market reached $500 million. As if that wasn’t enough, looking ahead, the market is expected to double to US$1 billion in 2022.

With jaw-dropping sales figures like that, it seems that metaverse real estate is nothing short of a virtual gold mine for those willing and able to take part. But buyer beware; simply because the metaverse has the potential to be an oyster for so many people doesn’t mean that it’s 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.

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, NonFungible.com 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.

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.

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.

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.

Big Risks with Potentially Big Rewards

Rife with uncertainties, investing in metaverse properties is highly speculative in nature rather than prospective. To say that the risks are big is an understatement. In the virtual world, you can lose all your investments in a blink of an eye. However, the rapid shift to full digitalization in almost all industries can also potentially reap big returns on metaverse real estate investments.

Before you make any investment decision, learn as much as you can about the metaverse. Understand all the risks and challenges, and weigh them against the potential benefits. Only after you have thoroughly researched all the pros and cons should you make your decision.

If all of this talk about the metaverse has you a little on the skeptical side, don’t worry you’re not alone. Only time will tell if the metaverse and all its glory is a flash in the pan or is here to stay. Whatever the case may be, one thing is certain, traditional real estate is still a sound investment. And if you happen to be in the market for a REAL home, then contact us today! Our agents are ready to help you find your next home.

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