If you’re a savvy real estate investor, you’re always on the lookout for the next big thing. And as much of life goes digital, so is real estate. There have been many interesting and exciting trends rising in the digital world — and one of them is digital real estate.
But is investing in digital real estate worth it? Or is it going to be like the dot-com bubble of the 2000s? Read on to learn the essentials of digital real estate: what it is, how it impacts you, and how it’s shaping the future of real estate.
In this guide, we’ll cover:
- What is digital real estate?
- Implications for real-life real estate
- 4 trends in digital real estate
- How to prepare for this digital transformation in real estate
What is digital real estate?
In broad strokes, digital real estate is virtual property — such as art, websites, and domain names — that has monetary value. The truth of the matter is that the term ‘digital real estate’ is rather abstract for even the savviest of investors and tech enthusiasts alike.
But to keep it simple:
Essentially, digital real estate is everything you see online related to real estate. It’s a virtual property that’s worth money. And much like traditional real estate, you can buy and sell these digital properties.
Just like with physical real estate, digital investors have the most essential tool to winning the money game: ownership. You can either purchase existing digital properties or build a new one from scratch.
And recently, after the announcement of Facebook rebranding itself as Meta, virtually everyone on the internet has heard of the metaverse. However, the metaverse — a combination of augmented reality and real-life experience — is merely one type of virtual real estate.
Examples of digital real estate
Technically, social media sites like Facebook and Twitter are considered digital real estate. Similar to traditional landlords, owners of those platforms get paid when users “purchase space” to display their ads and other promotional content. The difference is that digital landlords don’t need to repair leaky faucets or ceilings.
Another example of digital real estate is very similar to how we view real estate properties in real life. Companies like Decentraland allow you to purchase acres of virtual land and invest in the metaverse. In late 2020, the first NFT real estate house — called the “Mars House” — was sold for over $500k.
As a reminder, NFTs are non-fungible tokens, which are a unique type of digital currency that’s not replicable. So, the Mars House was created in such a way that no other person can destroy or replicate it. Such data lives on the blockchain, a certain kind of database with secure encryptions that make it impossible to alter.
The intrinsic value of digital real estate derives from the fact that it’s a limited resource that can’t be reproduced. Think of the fact that there’s only one original copy of the Mona Lisa in the world. People use this exact same logic when evaluating NFT properties. And unlike cryptocurrency such as Bitcoin, there exists only one copy of each NFT.
Implications for real-life real estate
Why in the world should you care about digital real estate if you’re a real-life real estate investor?
There’s a handful of valid reasons. For one, as the world continues to work remotely and depends heavily on digital assets to perform routine activities, the future will become increasingly digital. And real estate is certainly not exempt from this reality.
And as the general public becomes increasingly immersed in metaverses, getting involved with digital real estate might be an excellent way to diversify your portfolio. Although there are high price points of entry, there are plenty of affordable starting points. And if you find the most opportune time to invest in digital land, it could maximize your ROI when you sell it at the highest value point.
As the digital metaverse becomes more of a norm, the gap between virtual and reality shrinks. What people crave and buy in metaverses are often the very same things they do in reality. So as a digital real estate investor, you could use these platforms to gain real-time insights on the latest trends before investing in them in real life.
Lastly, the price of digital land is now comparable to that of actual land. For example, Republic Realm, a virtual real estate company, recently sold virtual private islands for $300,000 each, which is coincidentally the same as the average price of a house in America.
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4 trends in digital real estate
In late 2021, Snoop Dogg announced that he’s building a virtual mansion in The Sandbox, an Ethereum-based platform for creating and monetizing social and gaming experiences. And if you want to be his neighbor, you must pay the hefty price of $450k.
Additionally, amid the announcement of Meta, companies and celebrities are already boarding the digital real estate train. Artists now hold digital concerts in metaverses and brands sell clothes and accessories for online avatars.
Ready or not, the digital real estate revolution is already underway. To prepare for this virtual reality, keep up-to-date with the latest trends in digital real estate. Not only will this inform you how to invest in metaverses, but it will also help you reevaluate your real-life property investments.
The top four trends in digital real estate are:
1. Decentralized finance
DeFi — which stands for “decentralized finance” — refers to a series of blockchain-based financial services to automate workflows for financial decisions. The ‘’decentralized” aspect of it comes from the fact that there are no people at the head of a DeFi service. Instead, smart contracts — a set of programmed rules on the blockchain — administer such services.
For the past decade, we’ve been moving towards DeFi. For instance, money is already digital. In fact, only 8% of the world’s currency is materialized in the form of physical cash.
And in digital real estate, DeFi is at the core of every transaction. Traditional real estate is notoriously not transparent about the transaction history of properties so owners and investors can jack up prices when selling. But with decentralized finance, every transaction of an NFT property is publicly available, so it’s nearly impossible to game the system.
This is all to say that digital real estate uses DeFi services to be more accessible and honest to the masses.
2. Tokenized asset sales
In traditional real estate, there are a lot of middlemen involved in the investment and sales processes. Additionally, a sole investor must hold their investment throughout the project’s full term. They only get their return on investment when they decide to refinance or sell the property. Throughout the process, multiple brokers, transfer agents, and service providers collect fees and manage operations.
At the end of the day, all this results in settlements that take several days, have high transaction costs, and offer very limited real-time pricing information.
But in digital real estate, assets are tokenized, meaning that they live on the blockchain. This results in a streamlined, automated process that improves trade speeds, enhances transparency for pricing information, and eliminates the need for expensive service providers.
What’s more, tokenization means that multiple people can buy tokens of a particular property and co-own the building, allowing fractional or partial ownership of the asset. Tokenization also allows digital real estate assets to be a more liquid commodity, meaning that owners can easily buy or sell their shares cheaper and faster. Therefore, this process attracts more potential investors and buyers in the real estate market by democratizing and decentralizing it.
3. Personalization & individuality
From building properties from the ground up to designing avatars, folks in metaverses have the power to create a world that’s entirely personalized to their liking. And since users have the autonomy to design the world of their dreams in metaverses, this gives companies and brands exclusive access to consumer demands. As such, they can develop and advertise goods and services tailored to individual needs and desires.
In a sense, metaverses allow users to return to the purest version of their childhood — where their imaginations roam free and anything is possible. And brands entering these digital spaces are taking advantage of this immersive customization experience.
This also may have significant implications for real-life real estate properties. Metaverses could give real estate developers and architects real-time insights on which building designs and amenities tenants really want.
Essentially, virtual spaces can act as crowdsourced renderings of real estate properties that could eventually exist in the real world. The best part is that developments in digital real estate occur instantaneously, so developers and investors gain valuable insight as events unfold in real-time.
4. Focusing on location
If we’ve learned anything from the global pandemic, it’s that location is key. Without the physical constraints of having to go into a physical location, people had the uncanny ability to move anywhere they wanted.
And this couldn’t be truer in the digital landscape. However, instead of gravitating towards the suburbs — a strong trend we’ve witnessed in real life in recent years — the most popular properties in metaverses are in downtown districts.
Specifically, the more content a metaverse has, the busier it is and the more it’s worth. And similar to real life, digital properties in those areas are much pricier than surrounding “suburbs.” And so, developers of these virtual spaces are paying close attention to the architecture and personality of particular sections of each metaverse.
How to prepare for this digital transformation in real estate
The once far-fetched idea of merging the digital and real-life worlds is rapidly becoming a reality. These concepts aren’t just reserved for sci-fi movies like The Matrix or Ready Player One. And just like how the pandemic has expedited the mass work-from-home adaption, the same may happen for NFT virtual real estate.
How does this translate into tangible actions you can take now to prepare for the digital real estate transformation?
We’ve got a couple of suggestions:
- Invest in blockchain-based technology
- Consider collecting and sending payments in cryptocurrency
- Dare to enter the metaverse
Invest in blockchain-based technology
The simplest way to prepare for the seemingly inevitable digital transformation in real estate is to invest in proptech. Doing so will help your property adapt more quickly to the blockchain-enabled future.
Since the Internet of Things already powers proptech devices like video intercoms and smart locks, you can easily transfer most resident and property information onto a secure blockchain. Plus, residents will rest assured that their sensitive information is protected and safeguarded on a blockchain — much more than they currently are on standard online databases.
Even more, blockchain-enabled proptech devices and property management systems will be integrated and operate under the umbrella of one database.
As such, all devices can communicate and verify information instantaneously amongst themselves without additional programming. This allows you to seamlessly integrate all the moving parts of real estate.
Consider collecting and sending payments in cryptocurrency
Credit cards eliminated the need for cash, and digital wallets (i.e., Apple Pay and Google Pay) eliminated the need for physical credit cards.
So what’s next?
Cryptocurrency might take over digital wallets.
Online data privacy is becoming a prominent issue as we continue immersing ourselves in the digital world. So, don’t be surprised if more and more people want an extra layer of security for the currency itself to prevent fraud by financial institutions. Since cryptocurrency is decentralized, people may feel safer using cryptos when paying with virtual credit cards, especially for big transactions like real estate investments or even rent payments.
Dare to enter the metaverse
The truth is that the whole digital real estate phenomenon is still new. There are a lot of unknowns and uncertainties. But in some sense, that’s the best part of it. As an early investor or owner, this means that you have a significant say in how the future of metaverses unfolds.
You don’t have to start big. Who knows: Perhaps a lesser-known metaverse of today will be the hottest place on the market tomorrow. And entering the metaverse could offer you valuable insights into consumer behavior that can easily translate into real-world investment.
Over a decade ago, people were highly skeptical of the foreseeable success of social media platforms. But look at how much influence and impact those platforms have today. Metaverses could very well have the same trajectory, especially as augmented and virtual reality technologies become increasingly robust and ubiquitous.
The gap between digital and traditional real estate is continuously closing. And soon, it’ll be difficult to distinguish between the two (except for the fact that only one is IRL).
But big ecommerce companies are already taking advantage of AR and VR technology. For example, online furniture stores allow buyers to see products in their living spaces through their smartphones before purchasing them. In fact, IKEA has gone one step further and opened up a virtual catalog store in the metaverse!
And just like how we can’t possibly avoid the influence of technology on our daily lives, the metaverse could very much become an enormous part of how we function in society.
Unfortunately, there are still many aspects of real estate that are repellent to accepting technology. As a centuries-old industry, real estate has been the last to adapt technology into its practices. However, it’s becoming more and more difficult for the industry to resist the tech revolution.
The best way to prepare for the inevitable shift to digital real estate is to implement technology at your investment properties — today! Once you’ve done this, you’ll feel more ready to enter the metaverse or whatever new thing the world of technology comes up with next.