In addition to earning passive income from physical real estate, you can also generate income from virtual real estate.
Virtual real estate is online property, including domain names, websites, and online services. A virtual pub in an online game world is an example of virtual real estate.
If you’ve ever registered a domain name or created a website, then you’ve already owned some virtual real estate.
Ownership is somewhat of a gray area, both with physical and virtual real estate. I use the term loosely here. Ownership depends on how much control you have over the property, so we have a spectrum of possibilities. For instance, if you want to discover who really owns your home, stop paying your property taxes for a while and see what happens.
With virtual real estate, ownership can become especially muddled, but for the purposes of our passive income series, what we’re really concerned with is how much power you have to monetize your property.
Suppose you have a Facebook page. We could say that Facebook owns it more than you do, and you don’t have much control over the layout and functionality. However, you still have some ability to monetize, so you could treat it like your own virtual real estate to some extent. For example, you could recommend a product with your affiliate link, and if any of your friends buys, you earn a little money. Or you could use your Facebook page to drive traffic to your other virtual properties and then monetize that traffic.
Monetizing Virtual Real Estate
There are many ways to monetize virtual real estate, both actively and passively.
One way to make money with virtual real estate is by investing in domain names. If you can buy a domain name at one price and later sell it for more, you’ll profit from the appreciation in value, and appreciation can loosely be considered a form of passive income.
I still own the domain name dexterity.com, which I’ve had since the mid-90s. Single-word .com domain names can be valuable these days because they’re pretty much all taken (unless you invent a new word). So if I wanted to, I might be able to sell that domain for a profit.
You can also buy and sell websites, which is another way to trade in virtual real estate. Buy low, sell high, and you make a profit on the exchange. This isn’t necessarily passive income, but it’s a way to monetize such properties nevertheless.
Other than the value of the domain name, the value of virtual real estate depends largely on what kind of traffic it gets. More traffic is good. Higher quality traffic (meaning people who are willing to spend money) is also good.
One interesting form of virtual real estate is buying virtual property in a virtual game world. I’m not into that sort of thing, but I’ve heard of people making some money by buying and selling game world properties such as characters, game buildings, weapons, etc. Often they earn less than minimum wage though.
Developing Virtual Property
Anyone can buy virtual property since all you have to do is register a domain name, which can be done in minutes. This is a lot simpler than buying physical real estate.
I personally love virtual real estate since it’s easy to get started, you don’t need to tie up much cash, you don’t have to deal with banks and title companies and mountains of fear-based paperwork, it’s easy to maintain, and there are so many ways to monetize it with new ways being dreamed up every year.
I started this website for a total out of pocket cost of $9. My only expense was registering the domain name. I piggybacked the site on a web server I was using for another site, so I didn’t have to pay anything extra for web hosting. After that, everything I spent to improve the website, such as software purchases and hosting upgrades, all came out of the site’s revenue. Try buying physical real estate with only a $9 investment. You can spend more than that on gasoline just driving around to look at properties.
My favorite way to build traffic to a website is with lots of quality free content. This attracts visitors, links, and search rankings that can help maintain and increase the value of the property over time. When my site had no traffic, I posted this free content off site, so people could actually find it. This external content then helped drive traffic to my own site.
Traffic is key. Once you have traffic, you can monetize it in so many different ways. You can sell advertising, use affiliate programs, do joint-venture deals, solicit donations, sell subscriptions to a membership site, and more. Largely this comes down to testing and experimenting. Every site is unique, so what works for one may not work for another.
Jumping on Trends
When it comes to building up virtual real estate, many people really don’t know what they’re doing, just as I wouldn’t know what I was doing if I tried to invest in physical real estate. These people do the equivalent of trying to build a shopping mall in the middle of nowhere and then abandoning it half-finished. Then they complain that you can’t make money from shopping malls.
Perhaps the biggest problem I’ve seen is that people try to build virtual real estate by copying what others have already done to death. You don’t even want to know how many people have started personal development blogs after seeing mine. That strategy isn’t going to work very well these days.
When I first launched this site in 2004, I didn’t know of any other personal development bloggers. It was a relatively new idea. There were personal development experts, but they mainly focused on writing books and speaking. Most of their websites were just bare-bones online business cards, no more than 10 pages total. Many of them didn’t even know what a blog was. I sensed a big opportunity there, so I jumped on it.
Seeing this opportunity in 2004 was like finding cheap, vacant land right at the edge of a rapidly growing metropolitan area. You know that as the city grows, that land is going to become increasingly valuable, so it’s a wise investment.
When I started in 2004, for me and other bloggers like me, it was almost like we could do no wrong. There was far more demand for blogs than bloggers could satisfy. Many other bloggers who started around that time saw their traffic grow like gangbusters. Those golden days are over.
If I was starting out today, I would NOT start a personal development blog. This field is way too crowded in the blogosphere now. It would be a major uphill climb against entrenched competition to stand out, build a following, and get to the top of the search engines. I’m not saying it’s impossible to succeed with a new blog now — it can still be done — but it’s not nearly as accessible as it once was. There are much easier targets.
If I was starting out today and wanted to work in essentially the same field, I’d go where there’s still a lot of empty real estate, and I could get in cheap and build a following. I might get into ebooks since that market is exploding due to all the iPad sales, and it’s nowhere near the saturation point yet.
Other good choices would be apps for iPhones, iPads, and Android Tablets and phones. Another option would be to develop apps for Chrome, which recently became the #1 browser. And since the new Macbook Pro came out this week, you might develop a new app to take advantage of the Retina display as well as some of the new features of OS X Mountain Lion, which launches next month. Some of these markets may seem crowded already, but I think we’re just getting started.
Back in 2004 I was worried that I might be getting into blogging late because there were already 8 million blogs when I started, although most were akin to personal journals. Now there are probably 400-500 million blogs. I think we’ll see the same explosion in ebooks and various app markets over the next few years. You think 650,000 iPhone/iPad apps is a lot? Wait a few years. This is still early.
As Wayne Gretzky would say, skate where the puck is going, not where it’s been. Blogs are yesterday’s news. If you haven’t already ridden that wave to the top by now, you’ve missed the boat. Focus on the newer, more recent opportunities that are just emerging but that aren’t so saturated with competition yet.
When it comes to online real estate, if you snooze, you lose. When you see an opportunity, act on it.
One of the reasons people hesitate to take action is that they drown themselves in excuses. People who succeed could use all the same excuses though. It’s not the existence of potential excuses that’s the problem. It’s the willingness to succumb to them.
As I noted in a previous article, “I don’t know how” is perhaps the biggest and lamest excuse of all.
If you don’t know how, do it anyway. Once you do it, then you’ll know how. Of course you’re never going to know how the first time. Nobody does.
People often think they’re supposed to succeed with a process like this:
- Set a goal.
- Figure out how to accomplish it in a step by step manner.
- Follow the steps to complete the goal.
When they can’t complete step 2, they get stuck and procrastinate. They also whine a lot, which I hate.
A more realistic approach looks something like this:
- Set a goal.
- Figure out one small action that might move you closer to that goal. Worst case, just guess.
- Take that action from step 2.
- If you haven’t accomplished the goal yet, repeat from step 2.
Last year I didn’t know how to create a song. I didn’t know what the steps were. I couldn’t use the first method. But I was able to complete a song using the second method. I could guess at the first step, which was to run GarageBand on my Mac for the first time. Once the program was running and I looked at the interface, I had some ideas for what the next action step might be, such as “Create New Project.” Within that same session, I created my first song. It was awful and only 12 seconds long, but it got me started. And within a week or so, I was able to create something that was about 3 minutes long and at least tolerable.
It’s the same thing with building virtual real estate. No one knows how to do it at first, but they do it anyway. You just guess at a step and do it. Then you guess at another step and do it. Keep adapting and acting till you get somewhere interesting.
If you think you need to know all the action steps before you start, you’re just being goofy and paranoid. Even if someone else gives you the action steps that worked for them, they probably won’t work quite the same for you. The inputs will be different. You can try following a recipe, but it will come out a little differently each time.
Don’t psyche yourself out before you begin. With any sort of passive income stream, you’ll learn as you go. To a newbie that may seem like a scary thought. But once you get used to it, you’ll see that the uncertainty is what makes it fun.