Earlier this year, a Miami-based brokerage offered a new and exciting twist to a property sale. The buyer of the property, they said, would get a unique bonus as part of the purchase: a digital twin of the physical property. Inhouse Commercial partnered with Metaverse Group to develop a virtual version of the building, which went on sale as a package for $25 million. If all goes to plan, Inhouse’s deal will be the first commercial metaverse combo deal. However, Inhouse isn’t the only player in the digital real estate business. Sierra Development, a luxury home builder in Orlando, put a Miami mansion and its replica in the metaverse for sale for over eight figures and is hoping to do the same for the residential market.
Digital real estate has steadily been gaining momentum and traction recently, with several brands and commercial real estate companies looking into the opportunities this new format offers. For some, like Inhouse Commercial, the expectation is that investors who buy digital real estate will use it as a virtual meeting place for remote employees, while others are looking at it from a pure investment perspective.
With real estate sales on the four major metaverse platforms reaching $501 million in 2021, is digital real estate something you should add to your real estate portfolio? Let’s take a closer look.
Buying and selling digital real estate
Digital real estate is a property that exists in online spaces, such as metaverses or virtual worlds. Also referred to as virtual real estate, digital real estate is a digital place for people to gather virtually, much like you would in a video game or online learning experience. Digital properties can take many forms, and examples of digital real estate include parcels of land, buildings, and avatars. Like with real-life spaces, the virtual property can rise or fall in price depending on demand, popularity, and location.
Typically, a parcel of land in the metaverse is structured as a non-fungible token (NFT), which is stored in your crypto wallet and tracked on the blockchain. The NFT is a digital ledger that demonstrates proof of ownership of your digital land. There are several virtual platforms where real estate can be purchased, and theoretically, the amount of available land in each virtual world is finite. Much like in the real world, each land token has coordinates, and combining two or more adjacent parcels results in an estate. It’s helpful to think of the digital real estate market as programmable spaces in virtual reality platforms where property owners can overlay experiences or objects on land and create events. Visitors can socialize, attend meetings, attend virtual concerts, and so much more.
Online real estate is typically bought and sold in the following ways:
Metaverse land and property
This is the most common form of investing in digital real estate. Buyers can purchase land with a metaverse mortgage or through cryptocurrency like Ethereum. The land is bought in each metaverse’s primary marketplace; some transact exclusively in tokens specific to that platform or through secondary marketplaces such as OpenSea. There are currently 622,436 parcels of land in the ten largest metaverses, and $1.9 billion worth of land has been sold across the world’s top ten virtual platforms.
Real estate NFTs
Another way real estate is being bought and sold digitally is through the use of real estate NFTs; real-world land and properties are being sold just as they always have, with the slight change that instead of dollars, the exchange is made through cryptocurrency. The contract is executed in the form of NFTs. Propy is a real estate management platform that allows brokers and property sellers to keep the entire transaction on the platform. They were responsible for the world’s first real estate NFT that sold for $650,000.
Digital versions of physical real estate
While still new, companies such as Parcl offer you the chance to buy and sell digital versions of real estate that track the actual price of real estate assets in specific locations. Like a tracker fund, you’d be investing in real estate assets in particular locations and earning based on the appreciation of value. However, this is all done digitally, through blockchain technology, which means there are no realtors and no commissions.
Online digital assets
While modern definitions of digital real estate investing almost always refer to transactions on the blockchain or assets in the metaverse, digital real estate can also refer to “online properties” such as websites, newsletters, and social media accounts that can grow in value over time and create passive income for their owners. Affiliate marketing through Amazon, selling ad space, digital products, apps, and e-commerce stores have traditionally been ways to generate income from these assets. It’s also increasingly common to sell domain names or get buyers for an existing online digital marketing business or a WordPress blog through platforms such as Flippa. Search engine optimization or SEO can make an online startup successful.
How digital real estate investing works
If you’re looking to get started in digital real estate investing, here are a few things you should know:
Platforms
There are currently a few leading platforms for digital real estate investing in the metaverse, the most popular of which include:
- The Sandbox: This is one of the most popular and user-friendly of the current platforms. The platform is built on the Ethereum blockchain, and their in-game economy is powered by their token SAND and the crypto coin Ethereum.
- Decentraland: The development of this platform started in 2016 and was opened to the public in February 2020. Like Sandbox, Decentraland is built on the Ethereum blockchain and allows users to build gaming events and create and sell NFTs. This is considered the original metaverse project, and billions of dollars worth of virtual land have been sold on the platform. The native tokens are MANA and LAND.
- Axie Infinity: Axie Infinity is one of the most successful play-to-earn games in Web3. 97% of NFT holders had three or more Axies in their possession, with the NFT collection surpassing $4 billion in sales volume. The native currency is AXS. This platform holds the record for the record-breaking sale of one parcel at $2.5 million.
Currency
To purchase land in the metaverse, you’ll need to get hold of some cryptocurrencies. Popular choices include:
- Ethereum
- SAND, the token connected with the metaverse platform The Sandbox
- MANA, connected to Decentraland
Transaction
Purchases of land, properties, and assets in the metaverse are either made directly through the platforms themselves or secondary platforms such as Opensea and Non-Fungible, allowing sellers to list properties, set their prices, and connect with interested buyers. The sales and ownership transactions are recorded through NFT transfers.
Is digital real estate a good investment?
Depending on who you ask, digital real estate investing is the future of property and an excellent investment opportunity or a fad that’s likely to pass. While virtual land does lack tangibility and isn’t something you can physically see, touch, or live in, as an investment, it does have a few things going for it. Consider, for instance, the story of Las Vegas resident 37-year-old Robert Doyle, who purchased a virtual gas station inside a play-to-earn game called PolkaCity, which is currently bringing in a cash flow of $16,000 per month in passive income.
While still rare, examples of hugely profitable real estate investments that make money exist in the metaverse. At Decentraland’s first LAND auction in December 2017, a parcel of land cost $20. Those parcels sold for an average of $6,000 in 2021. By the start of 2022, they were at approximately $15,000 per LAND token. One of the biggest sales of the last year is property adjacent to Snoop Dogg’s in The Sandbox, a metaverse platform, which an anonymous buyer bought for $450,000.
Still, despite all the numbers and the optimism from digital real estate investors, the metaverse is relatively new, and digital real estate assets are far from stable. If a metaverse platform went bust, your land and assets in that platform would go down. There’s also, of course, the question of valuation; that is, when something has been artificially priced, it can quickly lose value overnight, making a plot of land in the digital world far more volatile than its counterpart in the real one or, for that matter, the stock market.
All these uncertainties have come into play recently as a rising cost of living crisis and a crypto bear market have led to massive declines in the prices of virtual lands in recent months. The average price of land sold across Decentraland peaked at $37,238 in February and had dropped to $5,163 by August. Similarly, Sandbox’s average sale price went from $35,500 in January to around $2,800 in August.
These figures could be construed as a massive buying opportunity or an indication of future things. Unfortunately, as of now, no one can be sure which one, and it’s crucial, as a beginner, that you do your due diligence before proceeding with digital real estate.
Start your real estate investing journey
Whether it’s physical or virtual, at Arrived, our mission is to give all investors, regardless of their experience level, the opportunity to take advantage of real estate investing. Our fractional real estate model takes the best from the physical and virtual worlds while giving you access to the hottest markets and prime locations in the real world. Earn the passive rental income without the hassle of being a landlord and with far less volatility than either digital real estate or the stock market. Look through all our available properties to get started.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. The views reflected in the commentary are subject to change at any time without notice. View Arrived’s disclaimers.
