What Is Digital Real Estate and How to Make Money From It?

Digital real estate is not a new phenomenon, but it is getting lots of attention right now thanks to the rapid development of the metaverse and the internet in general.

Investors are considering buying digital property to diversify their portfolios, while real estate companies are actively placing their property in the metaverse to promote their business, raise brand awareness, and make profits from renting them out.

Digital real estate is also becoming accessible for ordinary people who can now become investors. A US startup in this sector discovered that homeownership is increasingly out of reach for many, with house prices rising significantly year after year. They realized that blockchain’s fractional ownership could democratize investment in digital properties.

Our PixelPlex blockchain and STO consultants assisted them in developing a strategic roadmap and technical vision for their digital investment platform, focusing on system components, blockchain selection, and security token options.

The following sections delve deeper into digital real estate. We’ll explore how companies already profit from acquiring or creating digital properties and discuss the pros and cons of these digital ventures.

What is digital real estate?

Digital real estate is any virtual property that can be purchased, owned, and traded online. Before the arrival of Web 3.0, web domains, email addresses, mobile apps and blogs were considered digital property. Now, metaverse virtual land, buildings, cities, non-fungible tokens (NFTs), and digital currencies are on the list as well.

Platforms have created virtual worlds with plots of land and properties that users can buy and live in digitally. The most popular of these are Decentraland, The Sandbox, and Axie Infinity. Apart from real estate, they also provide opportunities to join special events like parties, concerts, and fashion shows as well as go shopping and hang out with friends.

How valuable is digital real estate?

The value of digital real estate varies greatly depending on its ability to generate revenue, attract and engage an online audience, and establish a brand presence on the internet.

For example, some domain names are considered premium and worth big bucks because they attract the attention of large numbers of users and generate good traffic. Voice.com is one of them: in 2019, MicroStrategy sold this domain to Block.one for $30 million. The latter used the voice.com domain to launch its blockchain-powered social media platform under the same name.

In early 2023, Above.com purchased the domain name help.com for $3 million. This acquisition is notable because the word “help” has a high search volume, with approximately 673,000 searches per month, so this domain had significant value.

Real estate like digital plots of land, apartments, and advertising billboards is often sold in metaverses and games as NFTs. Just like with real-world property, these NFTs have different characteristics and factors that can greatly influence their value. These include location, distance from the city center, or the presence of a famous celebrity’s digital apartment in the neighborhood.

The Sandbox, an Ethereum-based virtual world, can boast many millions-worth of sales of their metaverse properties. In 2021, Republic Realm bought land there for $4.3 million from a video game company Atari SA. This was the platform’s most expensive sale. Just a week before that deal, a plot of digital land in Decentraland was sold for $2.43 million worth of cryptocurrency.

As technology and the online landscape continue to evolve, the value of digital real estate is likely to change and grow in new and unpredictable ways.

7 ways to make money from digital real estate

There are various ways to profit from this new form of real estate, from registering and hosting domain names and offering other businesses advertising space, to buying and selling virtual apartments and renting out digital shops. Let’s learn more about 7 specific ways in more detail.

1. Advertising

Businesses that own digital real estate can generate revenue by selling advertising space and displaying advertisements on their websites or other digital properties, even billboards that exist only in the metaverse. This includes placing any type of ad — banner, pop-up, video, or sponsored content — on online platforms that receive significant traffic.

2. eCommerce

Businesses can enable their customers to buy goods and services directly through their digital properties: websites, online marketplaces, or mobile apps. Digital properties also provide businesses with valuable data about consumer behavior and preferences, which can later be used to improve marketing strategies and product offerings.

3. Subscription

Organizations can present exclusive content or extra services for a recurring fee as a way to generate additional revenue and provide value to their customers. When customers receive services they value and feel that the subscription is worth the cost, they are also more likely to remain loyal to the business.

4. Domain name registration and hosting

Businesses can offer domain name registration and web hosting services to other companies or individuals. In this way, they can provide their customers with a convenient and affordable means of establishing their online presence and generating recurring revenue. Buying and selling premium domain names can bring a profit as well.

5. Moving real estate to the digital world

Companies can create digital twins of their own properties or provide other real estate businesses with such services.

Digital twins are virtual representations of physical assets. Once you have created a digital twin, you can use it to take your clients on virtual tours. Virtual real estate will give them the clearest picture of the property they are interested in and help them decide whether they want to buy it.

Other ways of going digital include placing your property in the metaverse or creating your own metaverse platform.

The process of moving real estate to the metaverse, or generally to the digital world, is quite complex and may require the assistance of professionals with expertise in digital media, technology, and real estate.

6. Real estate tokenization

Real estate tokenization is the process of converting ownership of real-life assets into a digital token that can be traded on blockchain-based platforms.

The big advantage of tokenization is that it allows the creation of fractional ownership of real estate assets, making real estate investment more affordable and accessible. Fractionalization also provides greater liquidity in real estate markets.

Tokenization can also increase transparency and reduce the costs associated with traditional real estate transactions, which typically involve multiple intermediaries.

Our client considered these benefits to create their own real estate tokenization and investment solution. Our blockchain consulting team advised them on KYC/AML procedures for users, the tokenization and token issuance processes, wallet connections, and payment systems.

We also offered three security token implementation options: T-REX standard, ConsenSys’s EIP-1400, and ERC-20 with a Whitelist contract. We also defined critical platform roles, such as investors, who buy, sell, and manage fractional fund ownership; administrators, who create fund profiles and manage content; and sponsors, responsible for issuing tokens and managing fund assets.

This guidance equipped our client to make informed decisions on platform development and reach their goals, which were to provide an affordable and convenient space for real estate investors of all sizes.

7. Buying and selling property-backed NFTs

Businesses can buy and sell real estate in the form of NFTs in the metaverse and outside of it. This kind of NFT represents unique, scarce digital assets that are tied to real-world property. Since NFTs are issued and stored on the blockchain, buying, selling and owning these assets is decentralized, making it more transparent and secure.

Companies that buy NFT real estate in the metaverse do so for several reasons. The value of the property may rise over time and bring financial benefits. Another major reason is brand recognition and promotion: companies and brands buy virtual property to promote their products or services and interact with their target audience in the digital world.

It is important to note that making money from digital real estate requires a significant investment of time, effort, and resources, and success is not 100% guaranteed. Businesses should understand the risks and limitations associated with any income-generating activity and seek professional advice before investing.

What are the pros and cons of buying digital real estate?

While the concept of creating and trading digital real estate is gaining popularity, it is essential to carefully weigh the advantages and disadvantages before making a decision.

Check out this list of pros and cons to better understand what you can expect.

Pros of purchasing digital real estate

• High demand

As the internet and online platforms are on the rise and will never disappear from our lives, digital real estate assets such as websites, domains and blogs will remain highly sought after. As for real estate in the metaverse, it is also very popular these days and continues to attract investors.

• Potential for passive income

Many digital real estate properties are able to generate extra income through advertising, sponsorships, paid subscriptions, and other monetization strategies.

• Accessibility

Digital real estate can be accessed from anywhere in the world as long as you have an internet connection, and can be purchased from the comfort of your own home. If you want to buy NFT real estate from blockchain-based platforms, the process will not involve any third parties and can be carried out quickly and easily.

• Low barriers to entry

Unlike traditional real estate investments, digital real estate can often be acquired and managed with a relatively small initial investment, making it accessible to a wider range of investors and those who are just starting out in this area.

• Flexibility

Digital real estate, unlike physical real estate, is never tied to any specific geographic location, so businesses that decide to create or buy digital property have a much wider range of options.

Cons of purchasing digital real estate

• Lack of regulation

This is a typical, but nonetheless serious, disadvantage of many phenomena emerging in the digital world. The digital real estate market is relatively new and is not yet subject to the same level of regulation as traditional real estate markets, which can increase the risk of fraud and bring tax problems.

• Lack of physical presence

Digital real estate doesn’t imply any tangible physical presence, which can make it difficult for some investors to understand and appreciate its real value, especially when it comes to game worlds and metaverses.

• High volatility

Digital real estate is a highly volatile market and is not as stable as traditional real estate. Websites and domain names can be fairly stable, but the value over time of metaverse land and apartments is hard to predict.

• The need for technical knowledge

Buying and managing digital real estate often requires a certain level of technical knowledge and experience that not every investor has. However, you can always seek the advice of technical specialists.

How to invest in digital real estate step-by-step

If you are planning to get into digital real estate investment, our technology consultants advise you to follow the following three steps:

1. Conduct market research

Just like you wouldn’t buy a house without researching the neighborhood and its market potential, you shouldn’t dive into digital real estate investing without a thorough understanding of the landscape. Before investing, it’s essential to analyze the latest digital trends and competitor landscape. This will help you define what niches are currently in demand.

It’s equally vital to evaluate the different types of digital property available for investment, such as domains, websites, eCommerce platforms, virtual lands, and more. Pairing this analysis with a clear understanding of your target audience will enable you to craft an efficient plan for profiting from digital real estate.

2. Create a plan for your digital real estate investment

Once you’ve delved deep into the digital market landscape, the next pivotal step is formulating a strategic plan to monetize your investments.

Key elements to include in your plan are:

Clear objectives

You should decide whether you’re aiming for a long-term investment that provides steady income or a short-term venture to flip for a profit. Your goals will fundamentally shape your investment approach.

Defined target audience

It’s vital to know who you’re targeting. Each digital property, whether it’s a blog, an eCommerce store, or virtual land, caters to specific audience segments. Familiarize yourself with their behaviors, preferences, and needs to ensure your property aligns with their interests.

Effective monetization strategies

Determine how you’ll generate income, whether through advertising, affiliate marketing, eCommerce or subscriptions.

Budget allocation

Determine your initial investment and forecast potential operational costs. This includes marketing, content creation, and potential platform fees.

Metrics and KPIs

Establish analytical tools that will gauge your digital real estate performance. Using these metrics, you will be able to derive valuable insights and adjust your strategy accordingly.

3. Execute, monitor, and refine

Once you’ve laid out a detailed plan for your digital real estate investment, the next phase revolves around execution, monitoring, and continuous refinement.

Leverage data analytics solutions to see what’s working and what’s not, ensuring you’re on the right track to achieve your objectives. Your metrics will vary depending on the type of digital real estate investment.

For example, if you decide to build an e-commerce site, you can monitor visitor behavior, page views, bounce rates, and conversions. For digital real estate like virtual lands in metaverses, metrics might focus on visitor count, engagement rates, or virtual sales.

Keep in mind that digital landscapes are dynamic, and strategies that work now might need adjustment in the future. Iterative refinement ensures that your investment remains productive and profitable.

Closing thoughts

Digital real estate offers a unique investment opportunity for those looking to diversify their portfolio and capitalize on the growth of the internet and the metaverse. However, as with any investment, it requires careful consideration and a deep understanding of the market.

If your business aims to create or improve digital property that you plan to sell or use as a means of income, you can turn to our real estate software development services.

Our team will create a custom platform such as a website, mobile app or other digital property, or else improve the functionality of an existing one. We also provide ongoing technical support to help you maintain and enhance your platform, keeping it up-to-date and secure.

Want to dive into the digital world, place your property out there or build your own metaverse? We’ve got you covered. Start your digital journey with us and be among the first to ride this wave!

 

Disclaimer: The information provided in the article is for educational purposes only. It does not constitute advice or recommendations for embracing or investing in digital real estate and its constituents. Please seek professional advice before taking financial risks.