It seems the entire world is going online these days, from buying things online to how we spend our free time. And like many “old-school” pastimes, board games are also nearing their end of life, giving way to virtual games that don’t require a box to roll dice in, a checkered board upon which to move pieces, or passing “Go” and collecting $200.
Like the game of Monopoly, real estate is going virtual as well. Investors roll the dice in a gamble of speculation, hoping that the metaverses popping up hold the key to future success. Digital real estate is still in its infancy, but now might be the right time to get in on this new frontier.
The real question is: can I buy the virtual equivalent of Boardwalk now for a small sum and then charge double the rent (or more) in a few years’ time?
To help guide you through the complexities of digital real estate, virtual assets, and the various metaverses out there, we’ve put together this guide. Our introduction to digital real estate will help clarify what that term actually refers to, along with examples of real-life virtual assets. By the end of this article, you may have found your next investment opportunity, or at minimum a way to start investing in a virtual reality of your own.
Investing in physical real estate requires quite a bit, especially when it comes to time and money. In order to buy real estate, you need to put a down payment on the line, get qualified for a loan, and that’s all before you even start picking out potential houses or land to purchase (among many other steps in the process).
With digital real estate, however, none of that is necessary. There are no real estate agents to contract with, down payments to fund, or inspections to schedule. Instead, you’re leveraging the latest phase of the internet in order to profit from virtual assets. With this investment comes a vast range of benefits as well as risks, depending on how you play your cards.
Digital real estate is defined as a digital asset that takes up virtual space. There are many examples of this type of entity, but many consider the platform “Second Life” to be a popular precursor. In this platform, you created an avatar and used real currency exchanged for virtual currency to purchase various items.
For those of you familiar with non-fungible tokens, or NFTs, this concept is nothing new. Cryptocurrency is the vehicle which allows you to trade your dollars for virtual money, which you can then use to purchase NFTs, among many other things. In fact, like NFTs, much of the digital real estate available exists on blockchain technology, where a virtual “deed” gives you ownership of digital space.
Besides NFTs, here are some other common examples of digital real estate:
- Websites, including affiliates
- Mobile apps
- Virtual apparel
- YouTube channels
- Email lists
- Membership programs
- Intellectual property
While most of the web-based digital real estate exists on various platforms such as YouTube, Wix, WordPress, etc., the rest typically live in what’s referred to as a metaverse.
If thinking about plots of land that only exist in virtual worlds is difficult, tackling the concept of a metaverse can be hard to grasp. Let’s break down this concept a bit.
A metaverse, when you boil it down, is just a platform where a specific virtual world lives. If we’re talking about video games (which is how many people conceptualize digital real estate), a metaverse is like a way to access those individual games, such as through a PlayStation or Xbox.
Most metaverses are decentralized, meaning there’s no one entity that runs them. However, there are certain rules and regulations that somewhat govern how each metaverse works. In many cases, this is most evident in the types of digital real estate available, and how you can purchase those assets.
Cryptocurrency is most often the currency of choice in metaverses. Many have their own specific cryptocurrencies and corresponding exchange rates. Where you might be able to buy virtual land in one metaverse, that land doesn’t transfer over to another metaverse. Whatever purchases you make in the one metaverse stay in that metaverse.
Now that you know what digital real estate is and where it lives, how exactly does it all come together? This is where investing comes into play.
Digital real estate investing takes on many forms depending on what type of asset you’re looking into. For example, if you want to buy actual virtual real estate, you’ll need to choose a platform that allows you to do so.
We’ve talked about NFTs previously, and buying an NFT is an act of investing in digital real estate. Once you purchase an NFT, you’re given a virtual “deed” that allows you to rent, build, or sell that piece of digital real estate, or just hold onto it for as long as you’d like. This is one of the most popular ways to invest in digital real estate.
Many investors also take advantage of “niche flipping,” also known as “website flipping.” This process involves purchasing a website or domain, fixing it up and monetizing it, growing it until it makes a (larger) profit, and then selling it. In a way, it’s no different than renovating a real estate property and profiting from the sale.
There are many ways to make money from digital real estate investing through a website, including the following:
- Building a blog and monetizing it with affiliate marketing and display advertising
- Establishing an online ecommerce store and selling products and/or assets
- Setting aside space on your website for sponsored content
- Charging for an individual service you offer
- Requiring a membership and/or pay walls for your content and/or services
For example, a financial advisor might post money tips on their social media pages, directing clients to their website where they sell scheduled blocks of time in order to consult with them. In this case, their social media following, service packages, and even the website itself are all digital real estate entities.
At the same time, there are many other ways you can make money on digital real estate. Businesses such as Flippa, Empire Flippers, and FE International can connect you with other investment opportunities, such as ecommerce sites, content sites with affiliate marketing, and other monetized assets, including social media accounts.
If you are picking out a website to invest in and profit from, you’ll often see something called “multiples.” These are written as “30x” or “40x” and are one of the ways a website is accurately valued. If a website makes $3,000 per month, the value of it is 30-40 times that amount for an annual profit. Typically, anywhere from 30x-40x is the most common valuing.
You can also go straight to the metaverse in which you want to invest and purchase digital real estate there. If you choose a metaverse that deals in a particular cryptocurrency, you’ll need to exchange your U.S. dollars (USD) for your desired amount.
Most metaverses will also have a place to store that crypto, such as a digital wallet. Once you decide on a piece of digital real estate to invest in, typically all that’s required to purchase it is a click of a “buy” button. The currency is removed from your digital wallet and in turn you receive a right to the parcel or entity you bought.
Each marketplace that hosts virtual land is a metaverse in its own right. These metaverses come and go, but here are some of the most popular places to buy digital real estate at the time of the writing of this article:
The properties in SuperWorld exist in reality. Yes, you can purchase the virtual Eiffel Tower. Real-world properties are sold as parcels, some of them going for thousands of dollars or more. You can also purchase NFTs on SuperWorld.
Decentraland advertises itself as “the first-ever virtual world owned by its users.” This particular metaverse has a dedicated marketplace where you can purchase everything from clothing items to skins to actual plots of land. An example parcel of land in the popular Genesis Plaza costs 18,000 Ethereum, which is roughly $1,000, depending on the market at the time of purchase.
Play in the virtual sandbox with The Sandbox, a metaverse that offers users a place to “play, create and own the future.” You can choose from a number of NFTs, including collections from popular icons such as Snoop Dogg, The Walking Dead, and Deadmau5. Besides buying land, you can also create your own game, without having to know any coding whatsoever.
If all this talk about digital real estate and virtual land is too far out of reach, or if you’d just rather focus on NFTs, OpenSea has your back. This platform deals specifically with buying and selling NFTs such as art, domain names, music, sports, and trading cards, to name a few.
Like any investment out there, digital real estate brings with it both pros and cons.
Many have, continue to, and/or will benefit from investing in digital real estate. Here are some common benefits of this type of investment:
- (Passive) income potential: Some investors consider digital real estate to be a way to quit their 9-5 job and become self-employed. What begins as passive income could soon become a futuristic way to earn a living.
- Diversification: Investments are always tied to risk, but hedging your bets by putting your money in various pots can be a good way to minimize loss. Digital real estate, depending on the particular asset you choose to invest in, could fit into a specific risk category in your overall portfolio.
- Low initial investment: Depending on which type of digital real estate you invest in, you could be spending anywhere from $0-$20. Really, the potential to spend as much or as little as you want is built into the concept of digital real estate.
- Easily accessible: With such a variety of investment opportunities available across platforms and metaverses, obtaining digital real estate is not the hardest part of the process.
- Scalability: Websites in particular are some of the most scalable assets. With the right marketing, you could increase the value of failing websites you bought and make a decent living off the profits.
- Potential for (large) payoff: Predictions are many that say virtual worlds are the next frontier when it comes to getting in on a potentially large future return early on in the game.
The prevalence of ecommerce continues to rise, which many investors take as a sign that virtual investment opportunities will pay off. However, there are caveats to these opportunities, as with any investment.
Being cautious with your digital real estate investing endeavors never hurts. There are a few downsides to this type of investing, some of which we’ve listed below:
- Unpredictable and sometimes volatile market
- Value dependent upon the popularity of a particular metaverse
- Cyber security risks are high, especially in a virtual-based world
- Scams are just as prevalent online as they are in real life
- Little recourse available with no set global regulations
- Currency exchange rates may fluctuate
- Future taxes and other regulations can impact return on investment
- Understanding of digital real estate concepts useful in making the most of your investment
Choosing to invest in digital real estate takes weighing the pros and cons of an individual opportunity and oftentimes preparing for the worst-case scenario. Money invested should be considered a gamble in even the most secure transactions.
Digital real estate can be used like any other investment. Oftentimes, depending on the form of investment, it can be sold, rented, or even traded for other items or currency of value.
Digital real estate is considered by many to be the next high-risk, high-reward investment opportunity. When you boil it down, digital real estate is valuable because (a) it’s a unique asset and (b) there’s a limited amount of it.
Yes, digital real estate contains value. The kicker comes when it’s time to capitalize upon that value. Will metaverses rise and fall, bringing with them all your invested time and money? Or will a small investment here and there balloon up to a huge pay-off down the road? The answers to these questions remain to be seen.
Investing in cryptocurrency is just starting to gain traction among the masses. Digital real estate investment opportunities are also quickly becoming more accepted as well, especially given the global trend of ecommerce that many argue was boosted by the pandemic.
If you’re thinking about adding digital real estate to your investment portfolio, we hope this article has helped to clarify and educate you on the opportunities available. It may take some research and a learning curve, but it is possible for practically anyone to invest in digital real estate. The question remains, will that investment pay off in the future?