Investing in Virtual Real Estate vs. Investing in Real Estate Virtually
As technology continues to advance, investors are naturally looking for new opportunities to grow and diversify their portfolios.
Investing in virtual real estate and investing in real estate virtually are two investment strategies that sound similar, but are actually very different. In this article, we will explore each strategy, explain the pros and cons of each, and show you how to get started in one, or both, of these exciting opportunities.
Investing in virtual real estate means buying a unique plot of "land" in a digital world. There are several digital worlds (also known as Metaverses) available, including Otherside, Decentraland, and The Sandbox. Each metaverse has a pre-determined number of plots available, and users can buy, own, and develop these plots with digital buildings, in much the same way that investors own plots of land in the real world and build physical structures.
Investing in real estate virtually, on the other hand, means investing in real-world real estate through online platforms. Real estate crowdfunding, for example, is one way to invest in real estate virtually. Crowdfunding platforms allow investors to pool their funds to invest in physical real estate projects like fix-and-flips or multi-family rentals.
Investing in virtual real estate comes with a few impressive benefits and a few serious drawbacks. The benefits include high return potential and no maintenance. With the Metaverse technology being so new, there is room for substantial gains in the virtual real estate market. In February 2022, the average virtual plot was selling for $16,300. For those who purchased plots at $500, this represents an unbelievable 3,106% ROI! And because the plots are virtual, owners don’t have to invest any time or money in maintenance.
Unfortunately, being so new, Metaverse investing is extremely volatile. While the average plot sold for over $16,000 in February 2022, that average price had fallen to just $3,300 by June 2022. There is also serious investor concern about the lack of tangibility with virtual real estate. Investors are essentially paying for a line of code, which has very little utility compared with the prospect of real-world real estate. Furthermore, it can be difficult to invest in virtual real estate, as each Metaverse has its own cryptocurrency (the general term for any digital currency), which requires the use of a third-party currency converter.
Investing in real estate virtually comes with its own advantages and potential disadvantages. One advantage is that investing in real estate virtually requires very little time, energy, or effort. When an investor uses a reputable platform or investment company, the due diligence will be completed by a team of real estate analysts, and an experienced sponsor will handle the management of the entire project on behalf of the investors. This allows investors to receive completely passive income from their real estate investments. The ability to leverage other investors’ funds is another key advantage. By pooling funds from multiple investors, each investor gains access to a property that could be more valuable than an individual investor could finance alone. These lower investment minimums also create diversification potential; rather than investing 100% of available funds in a single project, an investor can allocate their funds across multiple projects for easy diversification. And then there are also tax benefits to investing in real estate virtually.
The primary disadvantage of investing in real estate virtually is that the individual investor does not have full control over the asset as they would if they were the sole owner.
For those interested in investing in virtual real estate, online marketplaces and auctions are the best places to start looking. Sites like OpenSea enable investors to search through digital assets, place bets, and make purchases. Once a digital plot is purchased, investors can choose to hold it or develop it and rent it out.
Investing in real estate virtually can be done through online platforms. There are many platforms to choose from, and investors can choose wisely by following key factors to consider when choosing a crowdfunding platform, including track record, transparency, and communication.
Investing in virtual real estate and investing in real estate virtually both have their own pros and cons. If you are looking for a speculative investment that could bust just as easily as it could boom, virtual real estate investing could be a good fit for you. And if you’re looking for a less volatile investing method that can still provide substantial returns while limiting risk, investing in real estate virtually is likely the better fit for you.