Digital real estate is a new, emerging trend in the world of investing. It's something that a lot of people are talking about, but not everyone understands what it is or how it works.
By not understanding digital real estate, you could be missing out on one of the biggest investment opportunities.
We're here to help. In this blog post, we'll dive deep into digital real estate and ask experts their thoughts about investing in it. We'll also look into the reviews or feedback of people who are already investing.
By the end of this post, you'll be equipped with a basic understanding and knowledge of digital real estate which can help you decide if this investment opportunity is for you.
What Is Digital Real Estate?
Digital real estate is best understood as a property that exists online. This can include anything from websites and apps to digital products and services.
More recently, virtual land in the metaverse is gaining attention and selling for up to millions of dollars.
The metaverse is a digital space that’s made up of many different virtual worlds. In the metaverse, you can exist in virtual reality and interact with others.
Buying digital real estate in the metaverse gives you a piece of this digital space. You can buy, sell, or rent virtual land just like you would in the physical world using different cryptocurrencies.
Expert analyst Kristi Waterworth of The Motley Fool cited The Sandbox, Decentraland, Somnium Space, and CryptoVoxels as some of the most popular platforms for digital real estate investors interested in purchasing virtual land.
In her report, Waterworth also provided data on how each platform performs in terms of sales performance to help investors make more informed decisions.
Examples of Digital Real Estate
There are a lot of different types of digital real estate. Here are a few examples:
- Websites – Websites and domain names are some of the most common types of digital real estate. They can be bought and sold for a profit. Popular websites also rent out space in their webpages for advertising.
- Virtual Land – Virtual land is a piece of land in the metaverse sold in the form of non-fungible tokens (NFT) in the blockchain. As mentioned in the earlier section, it can be bought, sold, or rented out for a profit. At present, a virtual plot in Decentraland sold for a record $2.4 million.
- Apps and Games – Just like websites, they can be bought and sold for a profit. They can also make money through advertising and by selling in-app purchases.
- eCommerce Stores – eCommerce stores are online stores that sell physical or digital products. A big e-commerce store like Amazon, for instance, makes a lot of money from independent sellers who use the platform to sell their products.
How Does Investing in Digital Real Estate Work?
Investing in digital real estate is not much different from investing in physical real estate. The biggest difference is that you're buying a property that exists online instead of offline.
Like regular real estate, there’s the potential to earn money from digital real estate through advertising, affiliate marketing, or flipping (selling it for a profit), among others.
According to Daniel Casillas, an account manager at real estate law firm Weeks & Irvine, LLC., digital real estate is just about as basic as purchasing a house or land to lease or sell for benefit.
But instead of buying a physical property, you buy a digital asset resource, adapt it, and ultimately sell it for a benefit. Just like physical real estate investments, the worth of the digital real estate is believed to appreciate, rather than depreciate over time.
Stefan Ateljevic, cryptopreneur & founder of BitcoinPlay, said that what is attracting so many investors is that real estate, much like digital assets and online gaming, are migrating towards blockchains.
“Even companies like Adidas have already staked out a ‘virtual shop’ in Decentraland housing plot, which is one of the most promising metaverse projects out there. On the most popular metaverse game Axie Infinity, one virtual plot recently sold for $1.5 million, just to give a bit of perspective of how crazy this trend has become,” Ateljevic exclaimed.
Reasons to Invest in Digital Real Estate
You're probably wondering why you should invest in digital real estate. To answer this question we turned to some investors and experts to ask them for their thoughts.
You Can Create Value and Innovate
Trevor Doerksen, CEO of ePlay Digital, a developer and publisher of augmented reality sports, eSports, and entertainment mobile games, said that brands, entrepreneurs, and investors should invest in digital real estate as a way to balance their portfolio.
Doerksen admitted that it's still very early when it comes to digital real estate investing as there is no way to know which worlds are going to be the metaverse MySpace, but that there’s a lot of potential for growth in this area.
Doerksen, however, has a different view on why he’s investing in digital real estate.
“I’m investing to create value and value innovate. I look for the ability to add significant value. This is not like adding a profile pic and bio. I’m building 3D objects, immersive worlds, and the ability to invite millions to engage in sports and entertainment via their TV, fitness tracker, phone, smart watch, and headphones,” said Doerksen.
It’s Highly Accessible
Dorothea Hudson, an investing expert with Clearsurance.com, believes that now is the time to start investing, “We are definitely at an important shift towards a more digital and remote era. So now is definitely a good time to invest in digital real estate, as it’s still early, but the shift has started.”
Hudson added that aside from digital real estate investing being highly profitable and flexible, one of the big pros of investing in digital real estate is that it’s accessible wholly from home because the entire market is online.
The ROI Is Good
What’s interesting is that even traditional real estate experts are getting into the digital real estate game.
For example, Mark Wolens, real estate principal & director at Independent Property Group Woden Weston, said that he has been investing in digital real estate for a few years now and has found it a very lucrative investment.
Wolens typically invests in high-quality websites and domain names with a lot of growth potential and said he has generated a healthy return on his investments. Wolens also added that the liquidity of digital assets makes it easy to sell them if needed.
When asked whether it's wise to invest in digital real estate, Wolens answered in the affirmative.
“Yes, as a real estate expert, I believe that digital real estate investing can be a great way to build long-term wealth,” Wolens said.
“While the profitability of digital real estate investing will depend on several factors, including market conditions, the quality and popularity of the asset, and the terms of the investment, it can still be an excellent way to secure a valuable online asset and generate long-term passive income.”
Drawbacks of Digital Real Estate Investing
As the market for digital assets is still relatively young, there are a few things that you need to be aware of before investing.
High Risks
Wolens said it's essential for potential investors to remember that all investments come with risk.
He went on to say: “Before making any investment, be sure to do your research and understand the risks involved. Additionally, start small and increase your exposure slowly to minimize your risks.”
Lucia Jensen, CEO of loan matching service WeLoans, agreed that there are benefits but also warned that there are risks present in investing in this market.
“Virtual real estate offers a new way for people to invest in real estate without the challenges of managing physical assets. Ownership is also secure through immutable blockchain contracts, which help prevent fraud,” advised Jensen.
“On the other hand, it’s worth noting that the digital real estate industry remains largely unregulated and experiences a lot of volatility. Diversifying your portfolio is highly recommended.”
David Bitton, Co-Founder and CMO at DoorLoop, also touched on the volatility of digital real estate investing.
“The fact that there is virtually no barrier to entry is the most compelling selling feature of digital real estate. However, the lack of predictability is one of the most significant disadvantages of investing in digital real estate,” said Bitton.
“The continuously changing trends and inherent volatility of digital assets make it difficult to keep up and decide which sort of property will provide long-term revenue.”
Reliability
There are also doubters in the space. Leonard Ang, the CEO of iPropertyManagement, an online resource guide for landlords, tenants and real estate investors, is of the opinion that compared to physical real estate and other material investments, digital real estate is a much less reliable investment.
“Just like in real world real estate, location is everything, and digital locations are only valuable if people are spending their time there. So far, no virtual world has had the staying power to develop a stable real estate market,” Ang said.
How to Get Started Investing in Online Real Estate
If you're interested in getting started with this type of investing, here are some important tips to help you get started:
1) Do your research
This is key before investing in anything, and digital real estate is no different. Make sure you understand what you're buying and the associated risks.
Look at the different options available and find one that best suits your needs. Consider the amount of risk you're willing to take on, as well as the potential return on investment.
2) Start small
Don't go all-in on your first investment. Try allocating a small percentage of your portfolio to digital real estate and increase your exposure as you gain more experience.
3) Prioritize location
Location is not just for physical real estate. When investing in digital real estate, you'll want to be sure that the property is located in a desirable virtual world or area.
For instance, an NFT collector spent $450,000 for a virtual plot of land to be Snoop Dogg's neighbor in The Sandbox metaverse where the rapper is developing an interactive virtual hangout space called Snoopverse.
4) Diversify your portfolio
As with any other type of investment, it's important to diversify your portfolio to minimize risk.
Consider investing in a variety of digital real estate assets, including those in different virtual worlds and with different purposes.
How Much Money Do You Need to Invest in Digital Real Estate?
One of the beauties of digital real estate is that you don't need a lot of money to get started. You can invest in digital real estate with as little as $10 to buy a domain name for a website.
However, like any investment, the more money you invest, the greater your potential return on investment. As in our previous examples, a virtual land can cost up to millions of dollars.
So what is digital real estate really worth? Just like physical real estate, the value of digital real estate is always changing and there’s no definitive answer.
How much a digital product is worth depends on how much someone is willing to pay for it.
How to Monetize Digital Real Estate?
If you own or plan to own digital real estate, you may be wondering how to monetize it. It really depends on what type of digital asset you own. You can rent out space for advertising or sell it for a profit.
Andrew Lokenauth, the founder of Fluent in France, shared that he purchased digital land in the metaverse early as a long-term investment.
He believes that digital real estate can be thought of as the evolution of real estate and that if current patterns continue, many who purchased early may make a lot of money.
“You have to think big picture and think long term, and my bet is in the future. I own digital land in the metaverse, and I plan to flip it. I made my purchase on the speculation that it will be worth more in the future than it will be worth today. Like most investments, the money is made in buying and holding,” Lokenauth said.
Conclusion: Should You Invest in Digital Real Estate?
Investing in digital real estate is a new and exciting opportunity. It's clear that there are a lot of factors to consider when making the decision to invest in digital real estate. The risks can be high, but so can the potential rewards. With the right strategy in place, investing in digital real estate can be a lucrative move for an investor.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
