The legendary Scottish-American industrialist once said, “Ninety percent of all millionaires become so through owning real estate.” Many wealthy investors can attest to this statement more than a century later.
The entire world consists of real estate, which is necessary for shelter, farming, and commercial businesses. This had remained unchanged ever since the days when Sumerians noted down property deeds on clay tablets.
However, technological advancements have made their way into every imaginable industry. A new type of real estate investing involving NFTs (non-fungible) has been practiced with substantial monetization potential. Let’s explore more about this concept and how to get involved.
What is a real estate NFT?
A non-fungible token is simply a cryptographic representation of an existing digital asset that is unique or one-of-a-kind, which cannot be exchanged with another as with a fungible digital currency.
Items like artworks, images, videos, and songs can be converted into NFT files proving immutable ownership to the holder through blockchain technology. Of course, the number of tokenizable assets goes beyond this, which is how virtual property has been growing as its own industry.
A real estate NFT is simply a tokenized version of a designated land parcel or plot on a virtual platform, most commonly a metaverse. These are shared online environments combining VR (virtual reality) and AR (augmented reality) to provide life-like experiences.
Here, you can socialize, learn, and partake in numerous recreational activities as in actuality. Like the real world, multiple types of real estate – from mazes, villages, and fashion districts to galleries, casinos, and even outer space – exist in these metaverses.
You can buy, rent, or even fractionally own these properties using the native cryptocurrency of the metaverse in question. Prominent examples of these virtual reality platforms presently include Decentraland, The Sandbox, Somnium Space, Cryptovoxels (the ‘Big Four’), and a plethora of others.
The value for real estate NFT
It’s natural for the layman to wonder why anyone would pay through their nose for a digital piece of land. Case in point; 116 land plots were sold on Decentraland for roughly $2.43 million in November 2021. So, what gives? It all boils down to demand.
Much of the factors making a particular real-world property more valuable than another can be attributed to virtual land. If we combine the premise that people will be spending far more time online than ever before, you have a recipe for substantial monetary potential.
The commercial appeal of virtual real estate is more attractive as you can reach a much wider audience digitally. For instance, Sotheby’s has a replica of its famous London New Bond Street Galleries on a Decentraland plot.
This understandably offers an opportunity for those who cannot see the physical building to experience it from the comfort of their own home. Like any other commercial entity, Sotheby’s will hope that an interest in their virtual real estate increases the number of people buying their products.
The other value proposition to real estate NFTs has to do with administration. Buying actual property in the physical world comes with humongous amounts of paperwork. Moreover, fraud is much higher since many of the processes are still largely human-driven.
However, a real estate NFT solves most of these problems easily. For instance, if multiple people desire to own a land plot, such tokens can simply prove the fractional ownership in a transparent, efficient, and trustless way with very little documentation.
These are a few benefits that any budding real estate investor would consider.
Investing in real estate NFT
Having covered the groundwork for this topic, let’s look at the steps involved in real estate NFT investing.
Choosing the metaverse
These come in the Big Four we previously mentioned, with Decentraland being the largest by far. However, what’s crucial is extensively studying the platform and finding out the aspects which contribute to the most valuable piece of land.
As they say in the real estate business: location, location, location! This mantra applies in the digital world as well. For instance, the best spots on Decentraland’s map are typically around plazas and districts. Both of these plot types tend to be the most valuable over time.
Of course, it’s not only the location that matters but also what the virtual land is used for. It might be an existing recreational spot one decides to buy and hold or a plot they may add onto with exciting features to increase its long-term value through renting or reselling later.
Linking up your crypto wallet
Every metaverse will use a native cryptocurrency which is purchasable on many crypto exchanges. Many of these tokens are also traded on wallet services like MetaMask, Trust Wallet, Atomic Wallet, etc.
Virtual real estate is usually sold on third-party NFT auction houses like OpenSea. However, you need to know the accepted wallets whether you’re purchasing the land directly on the metaverse’s marketplace or externally.
Once this step is settled, it’s simply ensuring you have enough funds to pay the seller.
Another avenue to real estate NFT investing is fractional ownership, which could be a much cheaper option given the expensive cost of virtual properties. Here, ownership of the NFT is split across multiple individuals to represent shares in a particular land piece.
We could think of it as crowdfunding. Another advantage of this method is you can go through platforms like Aqar Chain, Futurent, and Labs Group, which facilitate the whole process.
Overall, real estate NFTs are quite uncharted territory, a classic case of trying to derive ‘cents from nonsense.’ After all, it seems comical why anyone would pay thousands of dollars for a non-tangible creation.
Virtual property is still in its infancy, and only time will tell whether the so-called ‘land rush’ will continue or pop like a bubble. Digital real estate, as with any crypto-based innovation, has no regulation, further increasing the investing risks.
Yet, it’s hard to deny people will likely spend more time in digital realms if VR and AR technology becomes more advanced. Despite this, digital real estate investing is quite experimental and should only be something attempted by the most risk-tolerant individual (preferably one with deep pockets as well!)