An Introduction to Digital Real Estate in the Metaverse

There's a huge real estate boom taking place, not in the PNW or SoCal or even the Sun Belt, but in a universe wholly new: the metaverse. Imagine a virtual 3D world where you can socialize with friends, attend concerts in virtual reality, go shopping, or even order dinner -- all from the comfort of your home. 

The metaverse itself is made up of multiple digital platforms, each with its own currency and culture. You can think of the metaverse as a solar system and the platforms within it as different planets. Some of the most popular platforms for virtual real estate investors include Decentraland, The Sandbox, CryptoVoxels, and Somnium Space.

The metaverse is a place where geographical barriers are broken down and anything is possible. That's what commercial players like JP Morgan, McDonald's, Walmart, Death Row Records, MoviePass, and even Manchester City Football Club, as well as thousands of people and small businesses across the globe, are banking on.

It doesn't take any special hardware to access the metaverse, but digital real estate investing does mean exchanging your cash for the cryptocurrency of the platform where you're interested in purchasing virtual real estate. Decentraland's coin is called MANA (CRYPTO:MANA), while The Sandbox generally operates on SAND (CRYPTO:SAND). Virtual land in both can sometimes be purchased using Ethereum (CRYPTO:ETH), but you'll have fewer options.

This is just the beginning of a wealth of information about the metaverse and how it operates. Let's get into the details so investors can make the best decisions possible with their dollars.

What is digital real estate?

Metaverse real estate is just starting to show up on the radar of many real estate investors, so it's understandable that you may be asking what it actually is.

The metaverse is made up of different platforms that allow people to interact with others and build their digital dreams. Those dreams can be anything, from miniature games in haunted cemeteries to advertising billboards or commercial districts and metaverse HQs for businesses already established in the real world.

There are currently only four platforms in operation that offer significant opportunities for purchasing virtual real estate: Decentraland, The Sandbox, CryptoVoxels, and Somnium Space (Decentraland and The Sandbox are currently soaking up most of the spotlight and the commercial interest).

Land in each metaverse platform is limited to a set number of lots. The number varies, depending on the platform. In that way, land in the metaverse is a limited commodity, which is why investors are currently interested in getting their foot in the door before the best spots are taken. 

Virtual real estate in these platforms is secured with very real deeds in the form of non-fungible tokens (NFTs). When you buy a piece of digital real estate, your purchase is recorded on the blockchain and the NFT is transferred to your digital wallet, the same place you store your cryptocurrency.

This is similar to how real estate in the real world is held: there's a title for each individual parcel of land, it's recorded in a registry, and you get a copy to prove your ownership.

You can buy virtual real estate either in the marketplace of the platform where it exists or on a third-party NFT marketplace like OpenSea.

Will virtual real estate be a good investment going forward?

It's important to note that while metaverse real estate is exciting and new, and a lot of people are very into it right now, it's still a speculative investment.

Think of it like buying land in a newly formed town when America was pushing westward. Some of those towns ultimately made it, but many of them are buried under the literal sand of the desert and the figurative sands of time. 

There's no great way to predict if your platform will make it or not, but proto-metaverse platforms like Second Life have been in operation since 2003. The proto-platforms that have survived have very engaged and committed communities, so if you plan to buy land in the metaverse, it could be a good idea to help make the community more engaging, even if that's just by building something interesting or holding community events that double as promotional tools.

Virtual real estate transactions in the metaverse

As of the writing of this article, the top individual real estate sales have all taken place in Decentraland. Although there have been a few newsworthy purchases to the tune of millions of dollars, many of these were packages of lands, not individual lands or estates.

Digital land is exactly what it sounds like it should be: a big empty space. The size of a digital land parcel varies by platform, but measures the equivalent of 52 feet by 52 feet in Decentraland and approximately 315 feet by 315 feet in The Sandbox.

Estates, on the other hand, are properties that contain virtual land plus something extra. That extra thing could be a structure, such as a building, billboard, or additional parcels of land. They've been semi-permanently joined into a single unit with a single NFT deed and a new description. They're considered single properties.

The table below shows the top individual transactions disclosed through NonFungible.com, currently the largest data repository for virtual real estate sales. Prices are listed in both MANA and their U.S. dollar equivalent.

Because the relative value of cryptocurrencies to US dollars changes constantly, it's important to note that these dollar figures were based on the value at the time of sale.

The most expensive individual virtual real estate purchases

It's important to note that while it may seem that some listed transactions were at a loss, notably EST #985, which sold on 11/28/2021 for $1.085 million, or 210,000 MANA, then sold again on 12/10/2021 for $897,500 or 250,000 MANA, it can still be considered a gain because of the significant increase in MANA coin holdings.

Cryptocurrencies, much like foreign currencies, don't have a set dollar equivalent. Instead, the exchange rate floats, based on the value of the cryptocurrency on the wider market.

In other words, just because you buy MANA at $2.20 a coin doesn't mean it won't be worth $2.59 a coin 24 hours later. This dollar equivalent is always in flux, so sometimes the equation will be reversed, as well.

It's also worth noting that MANA and SAND can be exchanged for other cryptocurrencies at any time.

However, even if the MANA drops in equivalent value after the transaction, a virtual real estate investor or crypto investor could choose to hold the MANA gain indefinitely. The value could go up or the investors could spend the extra MANA on additional virtual properties to continue growing their holdings despite what appears to be a loss in the cash equivalent.

The value of MANA and SAND, the main tokens of the metaverse

MANA and SAND are currently the most important cryptocurrencies in the metaverse, as they are the units of currency that are generally used to purchase land in Decentraland and The Sandbox.

The following chart shows the variability in the coin's U.S. dollar equivalent over time as well as their pricing relative to one another.

It's important to keep this in mind when dealing in what is essentially foreign currency and foreign real estate: although it may be easy to shorthand in dollars and cents, the reality is that the investment is made in MANA or SAND.

Being cryptocurrencies, they're highly volatile. But just because a property may sell for a smaller dollar equivalent than its purchase price doesn't mean the investor will take a loss. Many people investing in this space are interested in growing their crypto holdings or their virtual real estate holdings, rather than their immediate cash equivalents. These investors are likely banking on the value of these cryptos growing over time.

However, if an investor is looking at virtual real estate from a dollars-and-cents perspective, this is not a stable investment type. A lot of factors can influence the value of cryptocurrencies.

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