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Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

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Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#21

Post by loftyai »

Hydraulix989 wrote: post #14
whoisjuan wrote: post #11

Do you have any type of financial insurance to backup of your claim that you will cover losses if the property sells for less? I'm not talking about having the money available to cover the losses, but actually being around at all to honor that claim. What happens if I buy today and your company goes to hell in two years? How can I trust this transaction with a horizon of 3 years without fully knowing how are you goin…

My first reaction was: If this company goes under (like 90% of YC startups) and you took this sort of arrangement, then you are @#$!'d (all caps).

Hopefully my other reply answered your concern as well. If not, let me know, and I'll be happy to go into more detail.

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#23

Post by w457uiw4gftyi »

malloreon wrote: post #5
Jemaclus wrote: post #3

For years the simplest heuristic I can find for finding up-and-coming places has been "Where is Starbucks opening new stores?" I assume Lofty's is much more complicated than that, but I'd be curious to see what the overlap is between the Starbucks Strategy (TM) and Lofty AI's. I do have a few more questions though: - Also, are you focusing on primary residences, homes as investments (i.e., rentals)? Do you consider a…

according to the site, you keep 80% of the profit, so their cut is 20%.

You keep 80% of the GROSS profit, so if there were $10k in closing costs, and $5-10k/year in taxes/HOA/condo fees, and the furnace and AC need replacing, etc...

Lofty makes this sound risk-free but it certainly sounds possible that your obligation to them would cancel out your entire NET profit. Buyer beware, as always.

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#24

Post by whoisjuan »

loftyai wrote: post #19
whoisjuan wrote: post #11

Do you have any type of financial insurance to backup of your claim that you will cover losses if the property sells for less? I'm not talking about having the money available to cover the losses, but actually being around at all to honor that claim. What happens if I buy today and your company goes to hell in two years? How can I trust this transaction with a horizon of 3 years without fully knowing how are you goin…

Great question! So, we actually maintain a 3rd party account that is only allowed to invest in short-term US treasury notes. We track all the properties in our portfolio daily. Any on paper depreciation will result in us depositing funds into the 3rd party account. Whenever a property price moves above the original purchase price on paper, we will withdraw any previously deposited fund. This on-going process along wi…

I understand the money part. My question is purely operational. Who is going to write me a check if Lofty AI, Inc. disappears? Do you have a contract with the 3rd party to do that?

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#25

Post by mayank »

loftyai wrote: post #19
whoisjuan wrote: post #11

Do you have any type of financial insurance to backup of your claim that you will cover losses if the property sells for less? I'm not talking about having the money available to cover the losses, but actually being around at all to honor that claim. What happens if I buy today and your company goes to hell in two years? How can I trust this transaction with a horizon of 3 years without fully knowing how are you goin…

Great question! So, we actually maintain a 3rd party account that is only allowed to invest in short-term US treasury notes. We track all the properties in our portfolio daily. Any on paper depreciation will result in us depositing funds into the 3rd party account. Whenever a property price moves above the original purchase price on paper, we will withdraw any previously deposited fund. This on-going process along wi…

> So, even if our company ceases operations, all of the downside protection will still be available to our customers.

Can you expound on this a bit? If you go under, who would I have to go to get paid? What legal guarantees would I have in place assuring me the payout? How do I know that your underwriting scheme is sufficient for covering your exposure?

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#26

Post by loftyai »

itake wrote: post #18
loftyai wrote: post #4

Earlier quoted context omitted.

Haha not at all, since we never ended up investing. We were inexperienced and didn't really know what to look for. Homes that required extensive rehab seemed too daunting and a turnkey property in a nice neighborhood was too expensive. (This will sound like we are very lazy...) We essentially wanted to buy an affordable home that would just grow in price over the next few years without us doing anything. At the time,…

As a SWE and "retail" RE investor (I flipped 2 houses with ~15% return), a big problem with using online data to determine the value of the house is it just doesn't calculate the condition of the house. Even if you hire an inspector, they may end up missing something and you may end up needing to pay an extra $xx,000 in unexpected repair costs.

That's a great point! This is why we deduct any home improvement costs from the gross profit calculation. So, if you spent 10,000 fixing the pipes and the gross profit was originally 100,000, we would actually deduct that from the gross profit. So our 20% share would be on top of 90,000 and not 100,000.

Additionally, most of our customers still visit the properties we recommend before they buy, so these types of problems are usually spotted during inspection before the deal closes. This has filtered out any bad quality deals due to home conditions.

Hope this answered your question!

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#27

Post by loftyai »

deepnotderp wrote: post #15

Have you considered measuring RF activity in areas to approximate the number of people? I'd also imagine that a higher ratio of telecom bands as compared to wifi bands would indicate more bias visitors and therefore potentially more future growth.

This is a great idea! We do not currently do this, but we do take into consideration the availability of gigabit internet as well as overall connection speeds for different neighborhoods.

This has actually proven to be statistically significant for a large number of locations across the united states.

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#28

Post by loftyai »

whoisjuan wrote: post #24
loftyai wrote: post #19

Earlier quoted context omitted.

Great question! So, we actually maintain a 3rd party account that is only allowed to invest in short-term US treasury notes. We track all the properties in our portfolio daily. Any on paper depreciation will result in us depositing funds into the 3rd party account. Whenever a property price moves above the original purchase price on paper, we will withdraw any previously deposited fund. This on-going process along wi…

I understand the money part. My question is purely operational. Who is going to write me a check if Lofty AI, Inc. disappears? Do you have a contract with the 3rd party to do that?

Ah got it! Sorry for the misunderstanding. Essentially in the case of our demise, our investors are not able to claw back the money in the 3rd party account. The rights will transfer over to our law firm to maintain kind of like an estate. They will be the ones to handle the operation of writing checks and sending funds to the correct counter parties down the line.

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#29

Post by loftyai »

mayank wrote: post #25
loftyai wrote: post #19

Earlier quoted context omitted.

Great question! So, we actually maintain a 3rd party account that is only allowed to invest in short-term US treasury notes. We track all the properties in our portfolio daily. Any on paper depreciation will result in us depositing funds into the 3rd party account. Whenever a property price moves above the original purchase price on paper, we will withdraw any previously deposited fund. This on-going process along wi…

> So, even if our company ceases operations, all of the downside protection will still be available to our customers. Can you expound on this a bit? If you go under, who would I have to go to get paid? What legal guarantees would I have in place assuring me the payout? How do I know that your underwriting scheme is sufficient for covering your exposure?

Per the operational parts of your question, it will be our lawyers who would be maintaining the 3rd party account and making sure the money gets sent to people who are owed the loss coverage.

In terms of our our underwriting process works. We do have clauses in our contract that removes our liability for act of god events, civil strife, or war. Barring these scenarios, the only other events that can move a property's depreciation to more than 20% is a recession scenario, which the hedging instruments would cover.

So, in reality, our exposure for every home is between 0 to -20%. So for every home we underwrite, we just need to mark funds equal to 20% of the property value.

Is this clear? If not, I'm happy to expand on it further?

Re: Launch HN: Lofty AI (YC S19) – Real estate investment with alternative data

#30

Post by loftyai »

bluedevilzn wrote: post #16
loftyai wrote: post #6

Earlier quoted context omitted.

Great question! The Starbucks Strategy is actually well known in the industry. Believe or not, large real estate developers and investors will often follow the same signals. They also look for things like Trader Joe's or Whole Foods opening. Our algorithm is very similar in concept to this strategy. However, by the time Starbucks or Trader Joe's opens in an area, it's often towards the middle or late stages of a neig…

Is this share of the profit based on actual profit after sale or the valuation after 3 years? From my limited research, property flipping every few years isn't a great idea because of how much is lost in the actual buying and selling process e.g. realtor fees.

Our customers have 2 options. They can choose to sell, at which point, the 20% is based on gross profit realized.

Or they can choose to buy us out. At which point the 20% is based on the "on paper appreciation" calculated by using the rate of change for the median home price in their neighborhood.

If they use the latter option, they of course, will not have to pay the fees associated with a sale.

We are also looking into whether we can partner with listing agents, who will share some of the commission with us, which we will then refund back to our customer to offset their fees.

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