Updated: Feb 24, 2022
The “metaverse” is a hot new technology that many people are excited about. If you have not heard of the metaverse, it is a sort of digital universe that is comprised of a network of digital worlds. If you don’t fully understand the metaverse, then you should not be disappointed, because the metaverse is still being built, and its potential is still being realized.
However, many “worlds” within the metaverse are designed to be able to be accessed with virtual reality (VR) headsets or with augmented reality tools. Because areas of the metaverse can be accessed with these devices, it is possible for metaverse users to have a more immersive experience than they currently can have with the traditional internet.
In fact, you can think of the metaverse as a sort of video game, that you can almost step into. Except the environment exists and is always “switched on” whether or not you are playing the video game.
Examples of the metaverse have appeared in various movies, most notably, Ready Player One, which was directed by Steven Spielberg.
What is Metaverse Real Estate?
Just like the physical universe, the metaverse has property that can be bought and sold. This property is purely digital and represents a piece of “land” or a “building” in the metaverse. Also, just like real estate in the physical universe, certain areas are more prized and valued than others.
Some of the most valuable real estate in the metaverse currently exists in the “Sandbox” metaverse, and in the “Decentraland” metaverse. Yes, there is more than one metaverse. A plot of land recently sold for $4.3 million in the Sandbox metaverse. Decentraland has also had plots of land sell for multiple millions of dollars.
Key Differences Between Physical Real Estate and Metaverse Real Estate
Although the metaverse is very exciting, it is important not to lose sight of the realities and limitations of metaverse real estate. Let’s talk about some of the most important differences between physical real estate based on planet earth and metaverse real estate.
Although there is technically scarcity for real estate within individual metaverses such as Decentraland, new metaverse real estate can always be created with some clicks of a mouse and with the pressing of some keys on a keyboard. Because of this, the scarcity that exists for real-word real estate does not really exist for metaverse real estate. In the real world, there is a finite amount of land on earth that is lived on, farmed on, developed, mined, etc. This true scarcity helps to preserve the value of physical real estate over time. The same cannot necessarily be said for metaverse real estate.
2. A Risk of Closure
Because metaverse real estate exists in digital networks owned and operated by various parties, there is always a chance that these parties could one day decide to simply shut down. This could be due to a lack of funding, a desire of owners to cash in on the project, etc. There could be a number of reasons why a metaverse could close down. Hackers could also potentially destroy a metaverse, thus reducing the value of its real estate to zero in the blink of an eye. Physical real estate cannot just be closed down by network controllers or by hackers. This is another important difference between the two types of real estate.
3. There is Very Limited Data for Metaverse Real Estate
Metaverse real estate is still in its infancy and has really only been around for a few years. As a result, there is very limited data. A lack of historic data makes it very difficult to create accurate pricing models or to have any way to understand what the long-term value of the property might be. This makes investing in metaverse real estate a major gamble.
4. Metaverse Real Estate Ownership is not Tracked or Validate by Third-Parties
Many people view this as a blessing because they believe that decentralization leads to greater freedom and personal control over assets. This might be true; however, with great freedom also comes great responsibility. A lot of the time, ownership of metaverse real estate and other digital assets like NFTs is recorded in digital wallets. Sometimes, people lose these wallets or forget their private keys or passwords and then suffer a total loss. Crypto wallets are also targets for hackers, which can be another problem. With physical real estate, there are always third parties, including government and private sector entities, who track and monitor the ownership of physical real estate assets. These parties can verify ownership if there is ever a dispute.
5. People Actually Need Physical Real Estate
Everyone needs a place to live. For this reason, physical real estate will always be in demand. However, people do not need digital plots of land to shelter themselves from the elements of Earth. People mostly use digital real estate for entertainment, status, or investment purposes. The fact that physical real estate is actually needed to provide humans with shelter and refuge from the elements is perhaps the most significant difference between physical and digital real estate.
Key Benefits of Physical Real Estate Investing
If you are trying to decide between investing in metaverse real estate or physical real estate, then we strongly believe you should prioritize investing in physical real estate. Physical real estate has all of the following important benefits.
Physical real estate is always in demand because people need a place to live.
It is an excellent way to diversify your investments.
It can truly be “passive,” especially if you use a syndicator who can manage the entire investment on your behalf.
Potential tax deferments.
High returns with lower risk.
Physical real estate cannot be hacked or shut down, unlike metaverse real estate.
Additional tax benefits such as depreciation, cost segregation, and more.
It is true that metaverse real estate has potential as an investment vehicle. In fact, many of the plots of real estate available in certain metaverses like Decentraland and Sandbox have appreciated tremendously over the past few years. However, metaverse real estate is undeniably more risky and volatile than traditional real estate. In fact, the entire cryptocurrency market in general, which the metaverse operates in is risky, speculative, and volatile.
This doesn’t mean that you cannot find good investments within this realm. On the contrary, there are probably many great real estate investments in the metaverse. But, compared to traditional real estate, they are nowhere near as secure, dependable, and stable.
We have hundreds of years’ worth of data proving that real estate prices tend to appreciate in America steadily over time. Plus, as mentioned above, people always need housing. Because of these facts, physical real estate is one of the most secure investments that anyone can make.
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About the Author
Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.