If you’re an experienced investor in residential or commercial real estate—or even both—you may be looking for new, unique investments to support. If that’s the case, digital real estate may interest you. After all, as interest rates on loans for physical properties start to rise again, it may be nice to branch out to the digital space for now. So, what is digital real estate, and how can you invest in it? Here’s what you should know before buying digital real estate.
What’s the Definition of Digital Real Estate?
Simply put, digital real estate describes virtual properties that you and anyone else can buy or sell. Virtual property includes websites, domain names, social platforms, blogs, URLs, apps, non-fungible tokens (NFTs), and other digital products. Basically, anything that exists online that you can buy or sell for profit qualifies as digital real estate.
So as a digital real estate investor, instead of buying and selling a house or office, you’d buy and eventually sell a website, app, or another digital asset. As you can imagine, there’s money to be made in digital real estate, especially as more types of digital properties become available.
In fact, the newest development in digital real estate is the metaverse. This virtual world exists online, where people can use avatars to represent themselves. Those avatars can gather in an area of the metaverse and virtually hang out with other avatars in a simulated reality, creating an online community complete with virtual neighborhoods, shopping centers, homes, businesses, etc. Users of the metaverse can virtually attend concerts and make, buy, and sell goods online. And now you can even buy and sell digital properties in the metaverse.
What Is Digital Real Estate in the Metaverse?
While digital real estate involves everything from websites to apps, lately this term is mostly used to refer to buying and selling virtual properties in the metaverse. This is due to the popularity of digital real estate in virtual worlds that include Decentraland, The Sandbox, and Axie Infinity.
In these virtual worlds, you can buy digital properties much like you would buy commercial or residential properties. The only difference is that you can’t live or work inside them! But you can own them and then choose to rent them out or sell them to make a profit. In fact, much like physical real estate, virtual properties have their own plots, so you can choose a property based on where it’s located in the virtual world. You’ll get a deed in the form of NFTs, and your real estate purchase will be recorded on the blockchain to prove ownership easily.
As an example of how digital real estate works in the metaverse, consider what features Decentraland has. In this virtual world, there are homes, offices, museums, artwork, games, etc. You can buy and sell any of these virtual items using in-game currency that you buy with real currency. If you want to essentially work as a digital landlord in the virtual world, you can purchase one or more parcels of land, which you can then develop into anything you want.
Just like with traditional real estate, developing your parcels of land will cost money—and the closer your parcels are to major hubs of activity in the virtual world, the more you’ll pay for them. Of course, you can typically sell them for more money, too! Some of the most expensive purchases of parcels in virtual worlds have totaled millions of dollars, with companies planning to create virtual stores, event centers, billboards, and more. There are even celebrities getting into these virtual worlds, including Snoop Dogg and Paris Hilton. And just like with traditional real estate, people are willing to pay a premium to become their virtual neighbors!
How Can You Make Money with Digital Real Estate?
If you’re new to the metaverse concept—and virtual properties in general—you might still be wondering, “What is digital real estate, and how can I make money from it?” Well, just as with traditional residential and commercial real estate, there are a few ways to see a return on your investment with digital properties.
The first one is simply buying one or more digital properties — whether that’s a parcel of land in a virtual world or a website, and waiting for it to appreciate before you sell it. This timeline could take months or years, and it might never appreciate as much as you want it to. But if you’re an experienced real estate investor, you likely already know this about buying and selling properties, so it’s not a surprise when it comes to digital real estate.
Another way to make money on digital real estate is by renting out the spaces you purchase. How? Well, one option is to sell advertising space on your digital property. So if you own a website, you can let businesses pay you to place ads on it. The more traffic your site gets, the more you can charge for ad placement. This can result in a lot of passive income for you as an investor in digital real estate.
You can also use affiliate marketing to make money from digital real estate. This is when you put affiliate links on your website or blog, and any time someone clicks the link and makes a purchase, you get a percentage of the total. This is another way to make passive income after investing in virtual property. Think of it like renting out a house or office you own—except you don’t have to clean the carpets and paint the walls between virtual renters of your space!
What Are the Pros and Cons of Digital Real Estate?
Now that you know how digital real estate works, you might be wondering if it’s worth looking into as an investor. As with anything, there are pros and cons. So, what is a digital real estate benefit you should think about before deciding to buy? And what are the drawbacks? Here’s what to consider.
The first benefit is the capacity to make an income without doing too much work. As long as you put in some time to research your digital real estate options—such as which domain to buy or which virtual world to invest in—you can relax once you make the purchase. You can either wait to see how much it appreciates with time—at which point you can sell—or you can sell ad space to make passive income.
Either way, these actions won’t take much effort from you, leaving you with time for another job or even allowing you to be self-employed as an investor in several digital or physical properties. After all, some websites and blogs are worth millions of dollars, so the potential for a good income is there. Plus, you can easily scale up or down as you learn more about digital real estate and determine if it’s right for you. It’s easy to start by buying one website, blog, or virtual world parcel. If your property quickly appreciates, you can buy more without having to schedule any walk-throughs of the property.
These advantages lead to the ability to diversify your investment portfolio with ease. After all, even if digital real estate works out for you, you’ll still want to keep physical properties in your portfolio since residential and commercial properties alike are typically considered among the best investments you can make.
Of course, no investment option is without risk. This is especially true of newer options, like digital real estate. No one can say how well it will stand the test of time, especially as new laws and regulations appear due to the increasing popularity of this investment. Unlike traditional real estate, we don’t have several decades of data to rely on when it comes to how profitable virtual properties can be in the long run.
As a result, it’s best to start small, making purchases you can easily afford until you get a sense of how digital real estate works. And make sure you’re always paying attention to the newest laws about this type of investment—especially regarding taxes—as they might affect where and how much you can invest.
You should also keep in mind that the currency used to buy digital property is not standardized. You typically use a cryptocurrency that’s unique to the place you’re buying property. For instance, Decentraland has its own in-world currency called MANA, so you’ll need to buy this if you want to purchase a digital parcel. This kind of currency is fairly new and not as stable as the currency you’re used to, so consider this before making any significant investments in digital real estate.
You should now have some answers to the question, “what is digital real estate?” And maybe you’re considering making your first digital property investment. But as mentioned above, this should only be one part of your portfolio, which means you’ll still want to invest in traditional real estate. That’s where ProspectNow comes in. As you look for commercial and residential properties to purchase, you can count on ProspectNow to give you the data you need to make an informed decision. Contact us today to start your free trial!