Is It Smart to Buy Real Estate in the Metaverse?

We wouldn’t blame you for being today years old when you found out that was a thing. But as it turns out, it is very much a thing. In 2021, a parcel of digital real estate—yes, you read that right, it’s pixels all the way down—sold for nearly 2.5 million euros.

Let that sink in for a minute.

Okay, now that you’ve had a chance to enjoy some Advil, let’s get into this.

You Can Buy Real Estate in the Metaverse?

Sure can. And when you think about it, magic internet land isn’t all that surprising. The basic premise of metaverse real estate is the same as with the rest of the metaverse: you can acquire the rights to (digital) places, then use those digital places for something. Because some digital places are more valuable than others, digital real estate commands varying prices. And because they can be used for different things, would-be metaverse tycoons can capitalize on their investments in a variety of ways. You can buy and hold, waiting for market forces to juice your asset’s value so you can make some money at exit. You can rent it out, allowing others to use it in exchange for a recurring fee. Or you can put it to your own use. The (pixelated) sky is the limit.

And because of that, metaverse real estate is rapidly becoming big business. Just like Gucci sold a virtual bag for more than its IRL counterpart, some real estate types are wondering how much they could get for, say, a virtual Madison Square Garden. Turns out, the answer is ‘quite a bit of money.’ Even though metaverse real estate is a pretty new concept, it’s already a nearly-$2 billion market, and some estimates suggest it’ll be knocking on $6 billion’s door in a few years.

That’s a lot of money. But it’s not terribly surprising. IRL, real estate investing is based on the premise that land will always be valuable. But some people spend a lot of time in the metaverse. And when they do, they need meta-real estate. (Sorry, we really couldn’t resist saying ‘meta-real estate.’) It’s just like your house, office, park, restaurant, or school—it’s just in the metaverse.

Plus, it’s not as new as it sounds. Building intricate worlds online has been a thing since The Sims came out. Spending lots of money on them has been since at least World of Warcraft (this writer feels old just remembering that WoW was a thing).

But the metaverse—and its economy—are in the early days. And when your hard-earned cash is on the line, it’s not enough that you can invest in virtual real estate. The question is whether you should.

Is Buying Real Estate in the Metaverse a Good Idea?

Probably not.

Don’t get us wrong—it’s a fascinating concept. And from the speed at which it’s taking off, it really might earn you some cash. But metaverse real estate is still a pretty fringe prospect. For our money, it’s not worth the risk. That’s because making money on real estate in the metaverse depends on a lot of things going right.

First, it probably only works if the metaverse really is the next big thing. But try as he might, Zuckerberg has yet to bring many people into the fold. To be sure, a ton of money gets funneled into various metaverse-related investments—in Meta’s case, as much as 20% of the total budget. But despite that, it’s hard to see the progress. After all, VR isn’t exactly a new concept. (Anybody remember Google Glass? Yeah, we thought so.) And it has yet to get the kind of mass buy-in that would guarantee its continued success. If the metaverse crashes and burns, good luck liquidating your investments amidst the chaos.

Next, even if the metaverse does take off, there really isn’t any such thing as the metaverse. Instead, it’s more accurate to say that there’s several metaverses. Sure, a few hundred million people use the metaverse in one way or another. But the biggest platforms aren’t the readily monetizable ones—at least for real estate investors. Minecraft and Roblox command lofty DAU counts, but it’s hard to see an avenue to profitability there. Some emerging platforms, meanwhile, have a downright ludicrous investment to use ratio. One platform valued at over $1 billion famously admitted that it had only 38 active users. So buying into metaverse real estate isn’t just making a bet on the metaverse in general; it’s also making a bet that whichever platform you choose is in it for the long haul.

While those are the two big worries, there’s plenty more. For instance, trade in the metaverse mostly relies on an assortment of Web 3.0 technologies. Those are promising, but as the FTX debacle illustrates, they’re far from ready to take over the financial universe.

Then there’s monetization strategies to worry about. We think one of the best things about real estate is its potential for passive income generation. Yet, while you can buy highly speculative assets in the metaverse to your heart’s content and hope to earn some cash if you manage to sell at Peak Bubble, it’s a bit harder to find promising avenues to stable income streams. So if metaverse real estate assets do belong in your portfolio, it’s most likely as a small supplement to mainstays like index funds and REITs.

Still, the prospect that someday you might be able to make money off of internet land is pretty fascinating. The market might not be ripe quite yet, but it’s well worth watching this space develop.