If someone uses the term “digital real estate,” there’s a good chance they have no idea what they’re talking about. It’s like saying the word fruit, water, or…real estate. Be more specific dammit. What type of digital real estate?
You wouldn’t tell a real estate agent that you want to buy real estate, you would be more specific and tell them you’re looking for a condo, a ranch style home, a duplex, an office building etc…Same with digital real estate/assets.
Do you mean a website? A domain name? An NFT representing some property in a particular metaverse? An app on your phone? A Youtube channel or Instagram page?
Just like there are many different forms of real estate, there too are dozens of different kinds of digital real estate.
To keep it simple, 9 times out of 10, digital real estate is just an online business. There are obvious exceptions, but that’s basically it. What distinguishes one type of digital asset from another is the actual business model being leveraged.
Business is business, whether offline (in the physical real world) or online (behind a screen).
The Types of Digital Real Estate
Domain Name: Think of domain names as parcels of land on which to build. A parcel of land in the middle of downtown is extremely valuable, just like a short and commonly used phrase like “money” “sex” or “fruit.”
Website: Think of a website as the structure, the actual improvements to the land (domain name). A domain name is raw land, but a website builds content on the domain name to enhance its value.
The type of content dictates the type of business model (blog, ecommerce, online course), which we’ll discuss below.
Digital Media Assets/ Social Media: Blog, Youtube channel, Instagram, Facebook, Twitter etc…These are all just televisions and newspapers online. Again, a business.
NFTs (exception to the rule): In some cases you can actually buy digital real estate. For example, there are virtual worlds on platforms like Decentraland, or The Sandbox that allow you to buy virtual land or real estate.
The hope is that as more people explore these gaming platforms online, you can make money off of them by, for example, showing them billboards on your virtual building – an advertising business.
Crypto Assets: Not really digital real estate but they’re a form of digital assets so worth an honorable mention.
Investing in Digital Real Estate: Business Models
Riskiness level of business model: 1 means relatively safe, while 10 means risky as f#@k!
Domain Names: Riskiness Level – 8
The Internet has been around for 30 years. Finding some valuable domain name/piece of digital land that has yet to be undiscovered is not happening.
Like all the good plots of land that some rich developer is sitting on waiting for the right offer, 99% of the good domain names are already owned by some squatter.
The chance of you finding a highly coveted domain name, buying it, and then flipping it to someone in a reasonable amount of time are very slim.
You might get lucky and hear about some startup with a funky name who needs to own the exact domain name that you own, but again, chances are slim.
Websites: Riskiness Level – 2-7
This is the tried and true real estate. It’s improved land, not a piece of dirt. It’s an actual business. There’s a reason that mortgage lenders don’t finance the purchase of raw land.
The only thing that matters is the business model.
Display Advertising: The dominant form of monetization for media assets – like IG and FB pages, YT channels and blogs. You get paid per 1,000 visitors to your digital asset so it kind of sucks unless you have a ton of traffic.
But, like a rental property with consistent tenants, if you buy or build a media asset with consistent traffic, you can make steady cashflow.
Affiliate ads: You leverage your audience to sell products and services for other businesses.
You may read a “Top 10 product review” on one website and then ultimately buy that product from some other website. That other website/business will pay you a small commission for bringing them business.
Ecommerce: This is basically an online version of a physical store. You sell products, courses, services etc…Like retail stores, low probability of success but kudos if you can make it work.
NFTs: Riskiness level – 10
An NFT is basically a public digital receipt of ownership. A blockchain, which is like a giant public spreadsheet, records this ownership.
Anyone can view and verify the ownership of that NFT asset: a ticket to an event, a luxury bag, a designer shoe, an article, video, piece of art, or yes, piece of digital real estate.
In the physical world, titles and deeds record and prove ownership of a physical piece of real estate, but there are platforms such as Propy that are looking to digitize this process as well.
Crypto: Bitcoin, Ethereum, Solana, Ripple, stablecoins like USDT or USDC are all examples of digital assets. Proof of ownership of this magical internet money is verified on the blockchain.
The Cons of Digital Assets
By the way, mortgage lenders could care less about your crypto and don’t count them as assets. it can’t be used as collateral to buy physical real estate.
You could have $1MM in Bitcoin or even in stablecoins but they are essentially worthless to a creditor. We’ve learned this the hard way.
Conversely, you could have penny stocks, gold bars, or physical art and they do count as assets. Go figure.
Digital real estate doesn’t help you save on taxes either. Good luck getting your CPA to depreciate the value of your website or social media handle.
Same goes for websites. Banks don’t care if you own Art.com or a TikTok account that gets 1,000,000 views a day. They are not viewed as true collateral.
What matters is the actual money (in fiat terms) that any digital asset makes. How much money are you making, and can you prove it on your bank statements and/or tax returns? That’s what matters.
We Have a Long Way to Go
Even though it’s obvious that there are millions of people making money online, lenders discount the value of digital assets. There are 4 year olds making money online for goodness sake.
But credit makes the world go ’round so if digital assets can’t be used as collateral, one can begin to question their value. Without credit, you won’t be able to get a loan to buy a home, car or be eligible for a credit card.
In short, most forms of digital real estate aren’t recognized as having value. We’re a long way from digital assets getting the legitimacy they deserve.
Should you invest in digital assets? This isn’t financial advice so that’s a decision for you to make.