While digital real estate and physical real estate are both forms of increasingly popular “alternative” investments, they are quite different. The chief difference is that the former involves digital property — with overall market values in the trillions. Here is what to know about digital real estate and other alternative investments.
In a macroeconomics sense, digital real estate is any virtual asset a person owns. That could be a website, blog, mobile app, digital billboard, or non-fungible token, for example.
But as the market grows, more people conflate the term with the virtual property that can be bought and sold in a virtual world. In other words, they are likely to think of “real estate,” sans physical locations.
For several decades now, real estate has been a popular and dependable form of investment. It has only been recently that investors have had opportunities to acquire property or start a business in “metaverse” – a new three-dimensional virtual universe.
Within the universe, digital real estate means virtual plots of land, whether they are empty or have structures. These are digital iterations of traditional real estate, sans physical locations. As with real estate in the physical world, digital properties are classified as lands, also called parcels. There are a finite number of parcels available per digital platform, which establishes scarcity and helps create stable values.
Depending on the investment platform one uses for virtual real estate purchases, the land bought can have various attributes, such as lot size and location. Platforms that are more focused on gaming might have even more attributes, including natural resources for mining and selling.
As has been discussed, digital real estate refers to owned virtual properties. Note that transactions are recorded on the Ethereum blockchain, to keep them safe. A blockchain is a public database that is shared across a number of network computers.
When people talk about physical real estate, though, they usually are referring to the physical assets with which everyone has grown accustomed. These properties can range from undeveloped land and commercial buildings to houses and apartment buildings.
Still, in some ways, the physical and digital worlds do collide. For instance, properties in both realms appreciate. They may also be bought, sold, rented, leased, and developed. Digital real estate can also be built upon to create something even more valuable.
Some benefits of physical ownership include:
Limitations to physical ownership:
As with any investment, there are benefits and drawbacks associated with digital real estate, which is a relatively new market, to boot.
In addition buying and selling virtual land, other primary ways to earn money from digital real estate include:
This is a trillion-dollar market with one investment platform reporting up to a 500% property value hike, supplying investors seeking to diversify their portfolios with assets not directly correlated with public markets.
Currently, digital real estate is where the Internet was more than 40 years ago. So, some people are still hesitant to buy virtual property. However, there is a lot of upside to the market, which is widely expected to continue to grow.
As with physical real estate, digital properties have attributes that add to their value. Attributes that help explain that value include the fact that each virtual plot is unique due to its location relative to other properties or attractions, or due to one-of-a-kind resources the real estate possesses. Recently, rapper Snoop Dog replicated his expansive California residence on one of the popular platforms. Subsequently, an investor paid $450,000 to be his virtual neighbor.
Note that when one purchases real estate, they get a kind of ownership “deed” that is stored as an NFT on the blockchain. If the property is sold, one’s deed – token – goes to the buyer.
Until then, the property is secured with one’s NFT. It can be rented, sold, or even demolished. The property may be built upon by the owner and someone else bestowed with the right.
An investment platform is required for the purchase of digital real estate. It may be a good idea to sort parcels in order of newest or oldest, and lowest and highest price. When deciding on a platform, consider the type of cryptocurrency required to buy such property.
After tokens are bought, they must be stored on the selected platform. Subsequently, the digital wallet may be used to invest in digital assets. The investor may act right away or wait until an appropriate property is found.
When buying digital real estate, it is important to consider the technology, currency, and the overall land value. As with physical property, areas that are highly desirable tend to be pricier.
In fact, digital real estate is one of the many different types of alternative investments to create wealth, examples of which are art, venture capital, and cryptocurrency. Alternative investments, which generally include assets other than stocks, bonds, or cash, are increasingly popular to help offset inflation, high interest rates, or other market changes.
They can also create steady secondary income. Consider, for example, that physical real estate has outperformed the S &P 500 for nearly the last quarter century. Art, too, has surpassed the index since 2000, returning more than 360%, according to the Artprice100 Index. What is more, returns on venture capital, previously accessible only by the ultra-wealthy and institutions, have averaged 32% over the same period.
Because they are not directly tied to the stock market, alternatives are also used to create investment portfolios that are not as subject to volatility. After all, diversification is an important key to successful investing.
Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.
To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Learn more about the ways Yieldstreet can help diversify and grow portfolios.
While no investment is risk free, more investors are turning to alternatives such as digital real estate to help create a more modern portfolio of holdings. The idea is to gain a hedge against market volatility and inflation, as well as the potential for consistent passive income.
All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.