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What Is Digital Real Estate? Examples And How To Invest

6-Minute Read
Published on April 4, 2022
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On a macro level, digital real estate is any piece of owned digital asset. That can range from a website to non-fungible tokens (NFTs). However, when you ask yourself “What is digital real estate?,” you might not be talking about owning a URL.

Investors, gamers and everyone in between have recently become intrigued with a new virtual world: the metaverse.

As mortgage rates fluctuate and inflation rises, tastemakers and people looking to expand their portfolio have turned to a new virtual asset within the metaverse – digital property.

To understand what digital real estate is within the metaverse, however, we must first understand what this virtual world is.

Table Of Contents

    What Is The Metaverse?

    The metaverse encompasses technologies including digital currency and different types of augmented realities. To compare, consider the internet a vehicle to browse, while the metaverse is a three-dimensional simulated reality.

    Infographic "How To Enter The Metaverse"

    The idea of living and spending in a digital world isn’t unheard of. Games like Fortnite have generated billions of dollars in part by selling virtual “skins” to players for digital tokens. 

    Still, talking about the metaverse today is much like talking about the internet in the 1970s. While a new digital world may be on the horizon, it’s difficult for anyone to know exactly what it will look like.

    So, what is digital real estate’s role in the metaverse?

    What Is Digital Real Estate And How Does It Work?

    Digital real estate refers to owned virtual properties. In Web 1.0, our digital real estate was email domains. In Web 2.0, social platforms. Today, Web 3.0 is emerging and digital real estate comes in the form of virtual parcels – NFTs and digital currency.

    Infographic "What Is Digital Real Estate?"

    Oftentimes, digital real estate in the metaverse is listed as an NFT in a specific virtual world. They exist as pixels and plots, oftentimes with logos. Some of the most popular virtual worlds with parcels for purchase include:

    • Decentraland
    • The Sandbox
    • Axie Infinity 

    These platforms are creating digital carnivals, shopping experiences, land parcels and houses. Like the physical world, these virtual worlds have limited supply and demand that drive prices. 

    While the worlds are digital, location still matters. For example, Snoop Dogg is replicating his California mansion in the metaverse on Sandbox, and someone recently paid $450,000 to be his virtual neighbor1.

     

    Is Digital Real Estate Valuable?

    Digital real estate in the metaverse has an expected market opportunity of $1 trillion3. To compare, Web 2.0 companies, like familiar social platforms, have a market value of $15 trillion.

    In Decentraland, plots of land have increased as much as 500%, according to Tokens.com CEO Andrew Kiguel2.  

    Below are some of the largest digital real estate sales in the metaverse to date:

     

    • Republic Realm’s purchase of 792 parcels: In November 2021, Republic Realm made the biggest-ever purchase from Atari, a record-breaking 792 parcels for $4.28 million4.
    • Decentraland’s largest land sale: Tokens.com swooped up 116 parcels of virtual Decentraland property for 618,000 MANA (Decentraland’s in-game currency), equal to about $2.4 million5. The land plot exists on Decentraland’s Fashion Street and will be used to host virtual fashion events and sell digital clothing.

     

    Like any investment, digital real estate exists on a scale of risk. While the returns could be large, they could also be negative. At this stage, it’s comparable to an ability to identify the investment potential of Google while it was still in Larry Page and Sergey Brin’s dorm rooms. While digital real estate may be the future, it’s difficult to predict which platform and technologies will reign.

    Pros of Buying Digital Real Estate

    The pros and cons of investing in digital real estate – not just within the metaverse – will depend greatly on what investment you decide to make. Some potential benefits may include: 

     

    • Diversification: Like any investment, digital real estate can be a way to widen your portfolio. This includes diversifying the actual products you invest in as well as varying your risk level. You may decide to make mostly safe investments sprinkled with one or two riskier strategies.
    • Self-employment: If your digital investments do well enough, you may be able to consider buying and selling digital real estate in the same capacity as you would day trading.
    • Scalability: Since many digital investments don’t require you to trade physical labor for money, they can scale quickly. Automating the process can also capitalize on fluctuating markets without the need for direct oversight.

    Cons of Purchasing Digital Real Estate 

    Likewise, the drawbacks of digital real estate investments vary widely depending on how risky or safe the investment is. Some potential pitfalls include:

     

    • Volatile markets: Some avenues of investing in digital real estate are extremely volatile. Metaverse platforms could be the next big thing, or they could die out. Even if they are the next big thing, which platform will ultimately reign? “It's entirely possible that the biggest ‘metaverse’ does not yet exist,” says Jasen Edwards of Agent Advice6.
    • Non-standardized currency: Many digital real estate purchases are made with cryptocurrencies, like Decentraland’s MANA or Sandbox’s Ethereum-based ERC-20 token. If you happen to make a fortune in one of these metaverses, cashing in will depend on the stability of its cryptocurrency.
    • Unforeseen taxes: Right now, the metaverse is akin to the Wild West. Laws and regulations still haven’t been fully created. Jeff Mains, CEO of Champion Leadership warns, “There is no stamp duty or property tax on digital real estate…those who purchase today must consider what may happen if and when taxes are instituted in the future7.”

    How To Purchase Digital Real Estate

    Just like the real world, you can buy and sell digital real estate as frequently or infrequently as you like. It’s important to consider the technology, currency and overall value of the land when purchasing digital real estate. Just like traditional property, highly desirable areas are often more expensive.

    Here’s how to purchase digital real estate in three steps:

     

    • Step 1: Pick a platform: Depending on the metaverse platform you choose, the digital currency you need will vary. For example, Decentraland requires MANA, an Ethereum-powered blockchain that cannot be replicated.
    • Step 2: Choose a storage method: To purchase digital real estate, you need digital storage. The most common metaverse platforms, Decentraland and Sandbox, require the MetaMask extension to store your assets.
    • Step 3: Purchase your parcel: Just like in traditional real estate, choosing the right property is essential. Sort the results in your metaverse of choice to find parcels by newest, oldest, lowest and highest price. Once you select your parcel, bid for the plot via OpenSea and wait for the seller to accept.

     

    A year ago, you could purchase digital real estate for hundreds. Today, you’ll need a few thousand. The technology is rapidly changing, and it’s essential to know the risk associated before attempting to make an offer on a property.

    The Future Of Digital Real Estate

    The future of digital real estate is both exciting and uncertain. It’s exciting because the potential for innovation is tremendous, but it’s uncertain because the market is still relatively new and continues to evolve.

    Graph of Web Technology Trends Over Time

    We spoke with Leonard Ang, CEO of iPropertyManagement, to understand his perspective of the future of digital real estate. Ang states, “Digital real estate has been around longer than people realize. We've seen similar hot ‘real estate’ markets around domain names in the late 1990s, as well as repeatedly in different MMORPGs like EverQuest and World of Warcraft8.”

    Ang continues, “At times the in-game currency for some of these parcels has rivaled small nations and some U.S. states. Most of them have either faded in popularity or remain niche markets. History suggests that this will be the fate of the metaverse as well.”

    So, what is digital real estate in the new and exciting Web 3.0? Digital real estate in the metaverse is still a new technology that leaves much to be explored, and maybe even capitalized on. If you decide to purchase a plot of land in the digital world, it’s still important to know the factors that make a good real estate purchase to maximize your return on investment.

    If you're still considering whether digital real estate is right for you, but you’re ready to make a real estate investment, contact a Home Loan Expert to speak with someone about your home goals.

     

    Sources:

    1, 2 CNBC 1, 2

    3 Grayscale

    4 Republic Realm

    5 Reuters

    6 Jasen Edwards, Agent Advice, direct communication

    7 Jeff Mains, Champion Leadership, direct communication

    8 Leonard Ang, iPropertyManagement, direct communication

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