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Digital real estate refers to land and buildings in virtual worlds such as metaverse platforms. Sometimes, the term is also used to refer to digital property more broadly to include things such as websites. However, we’ll be focused on the first meaning in this article.
The concept of digital real estate seems counterintuitive at first glance. After all, a practically infinite amount of virtual real estate or land can be created at virtually no cost, just like you can copy and paste a document on your computer as many times as you wish.
Just imagine—if everyone could have their own mansion on the beach in the real world, a mansion on the beach probably wouldn’t be worth very much.
What is digital real estate?
It is possible to create virtual worlds where land is scarce, similar to the real world. If the number of land parcels in a virtual world is limited, real estate in that virtual world can actually become valuable, provided there is sufficient demand.
This concept is often used by metaverse platforms, which aim to create virtual worlds that are similar to the real world in many ways. These platforms often try to mirror the real-world concept of ownership, allowing users to buy and sell virtual services and goods such as clothing, vehicles, real estate and so forth.
In many cases, digital real estate is represented with non-fungible tokens, commonly known as NFTs. The reason for this is simple—NFTs exist on blockchains, which provide a transparent record of ownership that’s very difficult to tamper with.
NFTs can also be exchanged between different users with just a simple transaction, making it very easy to sell digital real estate. The process of investing in digital real estate is often as simple as buying and selling NFTs.
Here’s just a few examples of metaverse projects where it’s possible to buy virtual real estate:
- Otherside - A metaverse from the creators of Bored Ape Yacht Club
- Decentraland - A virtual world powered by the MANA token
- The Sandbox - A metaverse with major partnerships
- Voxels - A virtual world using the Ethereum blockchain
- Somnium Space - Somnium Space - A metaverse focused on virtual reality
Is digital real estate a good investment?
Digital real estate is much more risky than its real-world counterpart, to put it mildly. The biggest risk of digital real estate investing is that all the virtual worlds where it’s actually possible to buy digital real estate are still in their relatively early stages. In other words, platforms like Decentraland and The Sandbox haven’t actually demonstrated that they can attract and maintain a large user base.
Even though plenty of tech visionaries and experts have forecasted the metaverse to grow significantly in the future, there simply hasn’t been a lot of demand so far. This is clear if we take a look at the example of tech giant Meta—even though Meta has been pouring billions of dollars into its metaverse efforts, its metaverse platform Horizon Worlds only has about 300,000 users as of February 2023. The user numbers for blockchain-powered virtual worlds like Decentraland are tiny even compared to Horizon Worlds’ 300,000 users, which already isn't very impressive in itself.
When you purchase real estate in the real world, you can be sure that your investment will always have some value even if the investment results in a loss. If you’re buying digital real estate in the metaverse, however, the worst case scenario is much worse. If the platform where your digital real estate is situated doesn’t get a significant user base, your investment will become practically worthless over time.
Of course, there are also benefits to digital real estate investing. If you’re investing in digital real estate tied to a relatively popular virtual world, the process of buying and selling is fairly straightforward and there should be enough liquidity that you can make a deal in a reasonable amount of time. Since metaverse platforms are still at their relatively early stages, you could potentially capture a lot of upside by buying digital real estate at this time.
If you want to buy land in the metaverse, check out our list of metaverse platforms where you can buy real estate right now.
Overall, digital real estate is a highly speculative investment. Always evaluate your financial situation before making any investment and never invest more than you are willing to lose.
What to look out for when investing in digital real estate?
Liquidity
Regardless of whether you’re buying digital real estate as an investment or for your own enjoyment, it’s important that you have the ability to actually sell your digital property if needed. Before buying any digital real estate, make sure that the market for this particular type of digital real estate is sufficiently liquid. As an example, you can check out the land marketplace for The Sandbox, or the Decentraland land marketplace.
When it comes to digital real estate that’s represented by NFTs, it’s easy to find trading volumes and sales figures since all the information about transactions is stored publicly on a blockchain. If you plan to sell your digital real estate at some point, stay away from illiquid markets.
Customizability
Different metaverse platforms and virtual worlds vary by the amount of customization they allow. Some platforms only offer cosmetic customization, while others allow users to build out interactive experiences on their virtual land.
If you purchase virtual real estate, it’s good to have options to customize your digital property to your liking. Highly customizable digital real estate can also be easier to sell, as the buyer will be able to customize the property after purchasing it.
Persistence
When evaluating digital real estate, it’s important to think about how likely it is to stay around for a long period of time. If the platform the digital real estate is based on is completely dependent on a single business or entity, it could be shut down in the future if the platform is no longer viable to operate from a business standpoint. In such a scenario, digital real estate would simply disappear.
In the crypto and blockchain space, some projects are attempting to create more decentralized and resilient digital worlds which are operated by a community of users. In addition, the fact that such projects utilize NFTs to represent digital real estate also provides some peace of mind to digital real estate owners.
For example, NFTs make transfering digital real estate from one virtual world to another feasible. It’s not difficult to imagine a scenario where two virtual world projects would allow real estate to be moved between the two platforms. This process would likely be much more convoluted for digital real estate where ownership is recorded in traditional databases.
How to buy digital real estate?
Now, let’s take a look at the process of buying digital real estate. We’ll be assuming that you’re looking to buy digital real estate on a platform that represents real estate with NFTs.
1. Choose what kind of digital real estate you want to buy
You will first have to choose what platform you want to buy digital real estate on. Examples of metaverse platforms that allow you to own digital real estate include Decentraland, The Sandbox, Somnium Space and Otherside (Otherside is still in development, but it’s already possible to buy virtual land for the platform).
Virtual worlds where real estate is represented with NFTs typically have marketplaces where you can see all the digital real estate that’s available for sale. Some platforms have dedicated marketplaces, while others use all-purpose NFT marketplaces. If you’re not sure where to find the marketplace for the specific platform you’re interested in, your best bet is to go to OpenSea and search for the project. If the project’s NFTs are not listed on OpenSea, check the project’s official website for more information.
2. Create a wallet for the blockchain you will be using
Most metaverse platforms use the Ethereum blockchain to issue their NFTs. However, some platforms might use Solana, Avalanche or another blockchain. In order to buy digital real estate, you’ll have to set up a wallet for the appropriate network. If the project is based on Ethereum, we recommend setting up a MetaMask wallet. Meanwhile, Phantom and Solflare are good options if you’re looking for a Solana wallet.
When setting up your wallet, don’t forget to safely store your seed phrase and never share it with anyone.
3. Top up your wallet with tokens
Next, it’s time to find out the token you’ll need to be using to purchase the digital real estate you’re interested in. In many cases, this will simply be the native token of the blockchain you’re using.
For example, the land NFTs in Decentraland and The Sandbox are issued on the Ethereum blockchain. You can purchase them on the OpenSea marketplace with ETH, the native token of the Ethereum blockchain. You’ll also need some ETH to pay the gas fee for the purchase transaction, so make sure you have some extra ETH in your wallet to pay for fees.
4. Purchase digital real estate
The final step is to purchase the digital real estate using OpenSea or whichever marketplace the digital real estate the NFT is listed on. After receiving the NFT in your wallet, consider transferring it to a hardware wallet for additional security, especially if the NFT has a significant value. A hardware wallet like the Ledger Nano S costs less than $100 but will dramatically improve the security of your cryptocurrencies and NFTs.
If you’re looking for tips regarding specific metaverse platforms, check out our guide to buying land in the metaverse.
Digital real estate for beginners
Digital real estate is a rather exotic type of investment. Not only is the concept itself counterintuitive to many, but it also involves cryptocurrency and blockchain, which are new technologies that not many people are familiar with. Here are some essential tips for beginners who are considering investing in digital real estate:
- Digital real estate is a high-risk investment
- Digital real estate is typically tied to a specific virtual world, so you need to factor in that virtual world’s chances of becoming popular
- Digital real estate is typically represented with NFTs
- You will need to set up an NFT wallet to buy, sell and store your digital real estate NFTs
- Before making the decision to buy any digital real estate, make sure to analyze the market using tools like OpenSea. If the type of digital real estate you’re looking to buy has low liquidity (low trading volume and small number of sales), it will be very difficult to find a buyer when the time comes to sell.
The bottom line—Is digital real estate worth investing in?
So, is digital real estate legit? Yes, but you have to keep in mind that this sector is in its extremely early stages. Metaverses and persistent virtual worlds are still nowhere near their full potential, and it’s very difficult to pick winners at this stage. Investing in digital real estate could prove to be lucrative if you pick the right platforms, but there’s likely to be a very high failure rate. If you want to get exposure to the growth of the metaverse, it might be worth investing in the top metaverse companies instead.
Now that we’ve learned the basics of digital real estate, check out our guide to accessing the metaverse to learn how you can start experiencing the metaverse yourself.