Digital real estate is arguably one of the biggest new investment opportunities, and it's getting a lot of attention right now. Investors and huge corporations like Nike, Microsoft, and Shopify, among several others, have flocked to the metaverse over the past year, with sales growing 700% in 2021 to a whopping $501 million.
The attention and money being poured into digital real estate are truly staggering, and while it seems everyone is jumping in on the digital real estate bandwagon -- I'm doing this instead.
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Buying physical real estate
When you buy virtual land in the metaverse, what you're really investing in is an idea. Yes, you get a digital title to an individual plot of virtual land that can be developed and even rented out for the long term for revenue. The one caveat to this is that the viability of that investment hinges on the idea that more users will participate in the virtual world, maintaining long-term demand.
Demand for digital real estate is driven by its users, which today isn't exactly huge. The Sandbox, one of the largest platforms in the metaverse, has around 30,000 active monthly users and had 65,000 digital real estate transactions last year. There's a lot of hype around the metaverse right now. Investors are hoping the idea will stick, but there is no guarantee that the metaverse or its digital assets will be around five, 10, or 20 years from now. Getting the mainstream on board could happen, but it very well could not.
Physical real estate, however, will always have demand. People in the real world need a place to live, somewhere to buy groceries or grow and store food. We need things like shops -- where we can purchase goods such as clothes, cars, or pet products -- alongside countless other real estate services that are essential to the functioning of our real world. While the real estate itself can lower in value over time, the land itself holds intrinsic value and doesn't rely on an idea to have worth.
That's why I'm focused on investing in physical real estate in our concrete world. Both commercial and residential real estate can be amazing long-term plays for generating cash flow. I've owned everything from fix and flips, rentals, and mortgage notes and am actively looking to add more residential or commercial properties to my portfolio.
Doubling down on REITs
For those who may not have the time, money, or interest to invest in owning or managing a real estate investment in our real world, another amazing alternative is real estate investment trusts, REITs for short. REITs are professionally managed companies that earn the majority of their income from real estate or real estate-related securities like mortgages. They invest in every type of real estate sector possible, from data centers, communications infrastructure, and industrial spaces to retail, hotel and lodging, self-storage, healthcare facilities, residential housing, and beyond.
There are over 225 publicly traded REITs to choose from, and because REITs are required to pay at least 90% of taxable income in the form of dividends, many REITs pay higher-than-average dividends -- making them a great long-term investment.
Over the past year, I've added extensively to my portfolio, primarily purchasing REITs across a number of sectors. Recent market volatility has put some really high-quality companies on sale, like Sun Communities, which develops, owns, leases, and sells mobile home, RV, and marina resorts in three countries; Mid-America Apartment Communities, a multifamily operator in the Sun Belt; and Digital Realty Trust (NYSE: DLR), which owns and operates 280 data centers across six continents.
I'm going to continue adding to my positions in REITs I love while expanding my portfolio to add new REITs in high-growth industries.
If you have extra cash on hand and are already well diversified in the real estate sector, with several high-quality REITs in your portfolio, buying a plot of land in the digital world may be a worthwhile play. But personally, I'd rather put my hard-earned money in assets that have value now and will hold their value well into the future.
