What Is Digital Real Estate Investing?

What Is Digital Real Estate?

With Web 3.0 ushering a more blockchain-centered approach to our day-to-day life, the future is indeed digital. From blockchain technology’s permissionless network and establishing DeFi (decentralized finance) globally to the inherent security of smart contracts, Web 3.0 applications enable industries to flourish without bureaucratic inefficiency. 

Most activities in the real world now have their digital counterparts. Shopping, banking, entertainment, healthcare, and more—virtually every aspect of modern life uses digital systems. In fact, even real estate can be found in the virtual world. 

But what exactly is digital real estate? And is it as valuable as physical property?

digital real estate

Source: pixabay.com

Digital real estate can include domain names, websites, blogs, digital products, cryptocurrencies, apps, email lists, social media accounts, NFTs (non-fungible tokens), and intellectual property. Because there are various forms of virtual assets, digital real estate is an umbrella term for all types mentioned. Here are some types of digital real estate and their examples. 

  • Websites: blogs, affiliate sites, stores
  • Domains: website names that have not yet been activated but can be bought
  • Digital products: online books, art, courses, virtual land space
  • Apps: applications downloadable for smartphones, tablets, and notebooks

These are what we consider real estate now. With the fast-evolving Web 3.0 and metaverse, it is only expected that there will be more types of digital real estate commodities developed.


What Is Digital Real Estate Investing? 


Digital Real Estate and Physical Real Estate: Similarities and Differences 

In essence, digital real estate are assets you acquire in the digital space. As the term suggests, these are assets that are worth money. They can be bought and sold as well as increase in value over time, just as traditional real estate assets would if they are well-managed. 

Digital real estate works much like physical real estate in this fashion. Any virtual asset that has value can be owned by purchasing. You, as the owner, can sell your digital real estate and earn a profit after the value has increased. 

Digital real estate can earn you passive income much like a conventional real estate asset can (e.g., rental income). The difference is, with your physical property, there is only so much you can change to add further value. Expansion is one, but usually, the property remains the same. On the other hand, digital real estate is much more flexible in this regard. Lead generation, building a following, ad revenue, and affiliate commissions—these are some of the methods you can use to enhance and add value to your digital assets as you go along. 

And perhaps the most important difference is that with digital real estate, the process of buying assets is streamlined. Smart contracts eliminate tedious legal documentation and bureaucratic issues. And the varied types of digital real estate open the door for investors to choose which type of asset they would want to include in their portfolio.


Metaverse and Digital Real Estate

Web 3.0 has paved the way for metaverse, which, while still being defined fully, means an interoperable virtual world. Metaverse broadens our world, as it involves a virtual landscape where users have a corresponding avatar. In the metaverse, you can still interact with other people, shop, trade, and explore much like in the real world, but in a highly interactive and boundless space. 

This type of digital real estate resembles how we invest in physical land and properties. Right now, there are several virtual worlds where real estate spaces are being bought. There’s Nifty Island, The Sandbox, and Decentraland, to name a few. 

And the market is commanding serious investment. For instance, Snoop Dogg bought a home for himself in The Sandbox. And an anonymous buyer snapped up the property next to the rap artist’s for $450,000. The virtual land called for this price because the proximity to Snoop Dogg counts as a big value-add feature.

The Sandbox

Source: sandbox.game

Multinational company ONE Sotheby’s also announced that they will construct MetaReal mansions, real-life properties that will have virtual counterparts in The Sandbox. In this case, ownership of digital real estate crosses over to the physical one and vice versa. 

These developments illustrate how we can invest in digital real estate as well as brick-and-mortar real estate. What the physical realm lacks, in terms of interactivity and capacity to build unique properties, is doable in digital real estate.


Top Reasons Why You Should Consider Investing in Digital Real Estate 

Whether you are a savvy type or a more conservative speculator, there is no denying that dabbling in digital real estate investing is going to be inevitable in the near future. So now is a prime moment if you are considering putting some skin in the game. There are a lot of advantages to owning virtual assets. The following are just some of them: 

Top Reasons Why You Should Consider Investing in Digital Real Estate

Low Startup Costs

One of the biggest reasons why people are hesitant to invest in physical real estate is the cost. High inflation rates combined with stagnating employment salary rates can hold back some individuals from investing in physical real estate. 

Digital real estate solves this difficulty, as the value for investment is much lower than brick-and-mortar options. One good example is buying domains. Depending on the name, you can purchase a domain for less than $10 annually. Websites are also generally cost-effective to build and maintain, as there are a lot of open-source tools to do so. Of course, the highly speculative cryptocurrency, NFTs, or virtual land may be pricier, but there are lots of other options you can consider when entering the world of digital real estate investments.


Global Supply

Digital real estate includes the parcels of land in metaverse worlds. You are essentially boundless within this space. You can snag as many pieces of virtual land as you can, as well as NFTs, domains, and websites, regardless of what country you live in. The blockchain-supported Web 3.0 enables people to invest in a permissionless but highly secure environment that protects digital property. Access is quite limiting in physical real estate, where taxes and ownership are based on geographical laws.

Digital real estate’s appeal is that there is virtually no barrier to investing and acquiring such assets. Take note: the barrier is low, but there is a plethora of info you have to learn when investing in digital real estate. 

Investing in domain names entails building up a portfolio or taking a guess on what domain names are likely to become profitable in the future. And when it comes to investing in virtual properties, you will have to analyze which plots of land you want to purchase based on their prospective value. 


Diversified Portfolio

Every investor understands the importance of not putting one’s eggs all in one basket, which is essentially diversification. If you are already investing in stocks and physical real estate, you can further diversify by venturing into digital real estate. Because of the wide array of virtual assets available, it makes for a healthier strategy overall. And as digital real estate is predicted to grow alongside brick-and-mortar property, digital assets present a viable opportunity for both novice and experienced investors.  


Quick Appreciation

Digital real estate is profitable in the sense that assets tend to appreciate much faster than brick-and-mortar assets. This is what we saw in the highly speculative nature of cryptocurrency. In 2021, Bitcoin only had 59.8% returns, but the total market cap for the cryptocurrency sector grew by 187.5%, with many top coins delivering four to five-digit percentage returns. 

There are a variety of digital real estate assets available, but one thing they have in common is a more rapid appreciation rate. You could enjoy up to five times higher in value with websites, crypto, authoritative blogs, and more. 

Along with faster returns, digital real estate can bring high margins, as you are only investing meager amounts in the first place. The low starting cost provides a lower risk but also potentially bigger returns for your money.   


Passive Income Potential

Depending on what type of digital real estate you have, there is a tremendous potential for healthy returns. For example, the sales of domain names may vary in price. Some could start for as little as $15. But in fact, the price could potentially go high depending on the demand for that name. 

Take for instance the most expensive domain ever sold, cars.com, which garnered a whopping $872 million. Gannet is the company that now owns that domain. The possibility of earning that amount for a domain name may sound improbable now, but it is not a stretch to earn thousands or even hundreds of thousands from a particular domain name.

Aside from domain names, another lucrative income generator is NFTs. This is a rapidly growing market where a unique digital asset (hence the term “non-fungible”) is managed and traded on a blockchain. Since NFTs can be anything that is digital in form, it can be a rare video clip, digital art, music, or a gaming tool, to name a few. 

Our NFT stats show that most NFTs sell for less than $200, and only 2.5% of sales were priced between $600 and $700. But like domain names, there were a few golden opportunities, and there are likely to be more. The most expensive NFT sold so far is by artist, Pak. His artwork entitled, The Merge, was sold to 30,000 buyers for a total of $91.8 million.

And we can’t leave out the incredible passive income potential of websites. Building a website takes months up to a couple of years to monetize, but once complete and fully optimized, there is no denying its profitability. 

Earning around $2,000 a month from a website is not too much of a stretch once it has enough traffic and enough established backlinks from authority sites. With a website, you would never have to shell out a million dollars to build a quality one or buy an already monetized site. In this case, the traditional way of investing can demand more capital for the same potential return that a digital asset could bring.


Control Over Your Investment

Compared to traditional investment options, digital real estate gives you a more hands-on approach to controlling the quality of your digital asset. Some examples include: you can add custom content and get backlinks for your website. You can choose to maintain a monthly revenue or buy and sell websites for one-time payoffs. You can pitch premium domain names to startups looking for a catchy brand name. You can increase the value of an NFT through effective marketing, or set up a passive income stream by renting out your NFTs and charging royalty. The list goes on.

Digital real estate lets the owner explore asset improvements on their own. There are still factors outside one’s control. But there is room for more customization compared to other types of assets.  


Investing for the Digital Future

Most people in the modern world rely on the Internet, AI, and machine learning to connect and use services. There is rarely a day that passes that we do not conduct some sort of activity through a screen. 

Virtual worlds and, in turn, virtual assets, will remain and become even more relevant. With technologies and concepts such as the metaverse, Web 3.0, and blockchain emerging and developing, the current landscape is prime for investment opportunities that, as mentioned, you can take hold of and manage to your liking. 

You can buy virtual properties or NFTs that you can later on sell to generate more profit. To help promote your digital property, you can leverage influencer marketing. Influencers who focus more on content and building a loyal following of people are specially equipped to build a foundation that will create returns for the future. In this creator economy, where creative pursuits, documented journeys, and authentic experiences can gain a loyal following, investing in digital real estate could mean earning income through evergreen posts and consistent viewership. Investing in all these virtual and metaverse assets can be a way to set yourself up for success.


Possible Drawbacks of Digital Real Estate

As with every other type of investment, digital real estate has its own set of disadvantages. These include the following: 

Possible Drawbacks of Digital Real Estate

Evolving Markets

Both traditional investing and digital real estate ventures experience risks, but some types of digital real estate are still quite volatile. Web 3.0 assets such as cryptocurrencies and NFTs can experience market crashes just as much as they can experience soaring prices. Metaverse platforms are still gaining ground, and it is yet to be seen which metaverse will dominate and would be worth investing in. 

As for Web 2.0 assets like websites, there are regular algorithm changes that Google and social media platforms implement. Once an algorithm is set, you have to customize your website features, content, and SEO in order to fulfill the new criteria. If you are unable to comply, then it reflects on your overall ranking and, in turn, revenue.

Meanwhile, with the different types of digital real estate available, each one also has its own set of risks that you must contend with to be able to gain returns. And so one best practice is to invest in several digital assets in case one drops or fails to yield returns.      


Non-standardized Currency

Digital real estate purchases, especially Web 3.0 assets, use cryptocurrencies. The Sandbox, for instance, is Ethereum-based, while Decentraland has MANA. With cryptocurrencies, Bitcoin is still the most mature. 

It is up to you to stay updated on market trends so that you know the most optimal time to sell or hold digital real estate investments such as metaverse investments and NFTs. It is important to remember that cryptocurrencies, like fiat currency, are not immune to changing values. There are speculative moves that could affect the value of a crypto overnight. Your crypto can experience surges or drops in value; hence, it is vital to get your timing right in terms of holding and selling. 


Unforeseen Taxes

This applies more to Web 3.0 assets, as Web 1.0 and 2.0 products have long since been regulated. In the new frontier that is Web 3.0, however, it is still like the Wild West. For instance, the introduction of individuals and entities building an online presence in metaverse worlds and transacting there presents challenges tax-wise. Tax systems surrounding metaverse transactions will have to be clarified. Currently, the IRS considers cryptocurrency as property, meaning it’s taxed as ordinary income.  


Security

Blockchain technology can secure your transactions and assets with smart contracts and end-to-end encryption. And so for NFTs, the risk of being a victim of digital real estate theft is highly unlikely. But for web 2.0 assets, for example, cyber-attacks and hackers could damage the integrity of your site. There is also quantum computing, which could pave the way for cryptographic measures to be obsolete. 

And on a simpler scale, your own way of securing your wallet and crypto passwords is just as crucial. You need to be able to authenticate your ownership of these digital assets and protect them from cyber threats.


Where to Buy Digital Real Estate

Because there is a variety of digital real estate types available, there are also multiple avenues where you can buy them. Here are the most common ones you could consider:

Where to Buy Digital Real Estate

Marketplaces

Marketplaces like Flippa and Microacquire are online marketplaces that specifically showcase websites, domains, and other digital assets that are for sale. These are legitimate sites that have done the vetting and organized the listings, so you know what you will be purchasing. Of course, you would still benefit from doing your own due diligence before investing. But these marketplaces are the easiest places to start your research. For NFT marketplaces, some of the most popular ones are OpenSea, Rarible, and Nifty Gateway.  

Marketplaces like Flippa

Source: flippa.com

Metaverse Land

Digital real estate in metaverses are parcels ready for purchase. Right now, the biggest platforms include Decentraland, The Sandbox, and Axie Infinity. Since cryptocurrencies are used in purchasing these virtual plots, you have to have Ethereum coins, SAND, or MANA tokens first. In addition, the transaction will be recorded as a transfer of NFTs, so you need a wallet like Binance and MetaMask. When investing in these virtual worlds and choosing which plot to purchase, remember that the rule is the same as in the physical world: it is all about location, location, location.

Direct Sale

If you’re after a more personalized approach, you can always approach a seller directly. No matter the digital asset type, whether it is a website, a piece of virtual land, or an NFT art—if there is an agreement between you and the seller, then that is a closed deal. Personal communication eliminates the third-party add-on cost when you join a marketplace. And most importantly, you could inquire about digital real estate that’s not in public listings yet.

Social Media Groups

Joining or subscribing to social media groups focused on digital assets is another option. While you are scouring for potential assets to acquire, you get a chance to join a community of like-minded enthusiasts and interact with experts in these digital assets. 


Digital Real Estate Investing: The Takeaway

Digital real estate is an exciting, boundless market where you can design, buy, and regulate your own virtual assets. From web domains and social media accounts to NFTs and metaverse virtual plots, digital real estate is and will continue to grow as an investment market. There are many avenues to get started, and with only a few years, there is a potential to grow an income stream from such assets.

With any investment, it is important to know which type of digital real estate suits your time, preference, and skills the most. The emerging market is here for the taking, and it will depend on your own set of standards on how you will go about cultivating your digital assets. The big takeaway is to inform yourself first before deciding, so you do not go into a venture relying on trends.

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