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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

#61

Post by onlyrealcuzzo »

loftyai wrote: post #49
Bombthecat wrote: post #47

Earlier quoted context omitted.

He was talking about a recession. Which might happen. (since people feel like it is getting closer) If you know a stock which actually goes up in a recession, please let me know!

Haha it's not really about the stock itself. It's about how you bet in the market. If you truly believe that the market will fall, you can short sell and index fund or purchase some put options on that index. If the market does fall, you will make money as a result. You just need to make sure the instrument you are betting against is representative of the overall market.

Okay... but who issues the instruments? I mean, what happened to instruments sold by Bear Sterns when they were acquired?

And what instruments are you actually buying? Are there put and call options for CoreLogic Case-Shiller???

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

#62

Post by cortesoft »

Bombthecat wrote: post #47
loftyai wrote: post #46

Earlier quoted context omitted.

Thanks for your question! I believe my main post or the responses might have been unclear. If so, my apologies. But your understanding isn't correct. Other companies are not insuring your downside. We are the only counter party you have. The problem is if a recession happens, then a lot of our properties actually decline in value. As a result, we might not be able to pay you back. So to make sure we can pay you back…

He was talking about a recession. Which might happen. (since people feel like it is getting closer) If you know a stock which actually goes up in a recession, please let me know!

https://en.wikipedia.org/wiki/Short_(finance)

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

#63

Post by onlyrealcuzzo »

loftyai wrote: post #46
onlyrealcuzzo wrote: post #42

I'll start by saying that I assume you know much more about the market than me, given that you've started this company and made it into YC. If I read your post right -- the way your insurance works is: I'm a home buyer. I think the housing market is frothy right now, but I want to buy a home anyway. So I can use your insurance to protect myself in the event the value of my house decreases in the future. Your company…

Thanks for your question! I believe my main post or the responses might have been unclear. If so, my apologies. But your understanding isn't correct. Other companies are not insuring your downside. We are the only counter party you have. The problem is if a recession happens, then a lot of our properties actually decline in value. As a result, we might not be able to pay you back. So to make sure we can pay you back…

That's more clear.

What happens if the house goes down 25%? I have coverage on the first 20%, and then I'm liable for the other 5%?

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

#64

Post by tryitnow »

Do you have any customer testimonials? It would be good to link to them.

This is definitely something I would never consider doing unless I've heard other people doing it, I would never want to be the guinea pig here.

And honestly, if I am financially clever enough to understand your value proposition then I'm probably financially clever enough enough to buy some downside protection on general real estate assets.

The most interesting value proposition here is the ability to predict future home prices, but if you could really do that you would be working for one of the massive real estate funds, for the same reason that someone who is really good at picking stocks will work for a hedge fund (and eventually create their own), that person isn't going to decide to give investment advice to a gazillion pipsqueak investors or manage the accounts of a bunch of little investors, even if they can easily automate it.

In other words, the ability to predict asset prices is something that it makes sense to keep as private as possible, not something to share with the masses.

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

#65

Post by onlyrealcuzzo »

tryitnow wrote: post #60
Bombthecat wrote: post #47

Earlier quoted context omitted.

He was talking about a recession. Which might happen. (since people feel like it is getting closer) If you know a stock which actually goes up in a recession, please let me know!

Buy put or sell calls on an asset that's highly correlated with the overall economy. This is honestly the least controversial claim the OP is making.

Correlations change. You never know if gold might tank along with assets in the next recession. Or if yields will tank along with assets in the next recession. What if there's just hyper inflation?

No one knows what's going to happen...

You can go with Dalio's claim that as long as you have 10 hedges that are sufficiently un-correlated, your risk is incredibly low. But even that might not hold up under future unknown conditions.

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

#66

Post by loftyai »

rajacombinator wrote: post #59

It’s an odd business model. I think if you had any faith in your predictive ability you would just raise and run the fund yourself so as not to leave money on the table. This sounds like all the “crypto trading as a service” scams that have come up over the past few years. YC should avoid getting involved in trading businesses they don’t understand. Just my 2c.

This is totally understandable reaction to the business model. We do put our money where out mouth is but nonetheless it does beg the question of why we don't just do the investments ourselves.

One major issue is capital. But beyond that we also see a saw a market need for a product like this when trying to make home purchase decisions in personal life prior to creating Lofty. And that was the market and problem we wanted to address with this company - not just to be a big fund that buys real estate en masse and profits from it - but to help people who can't afford to make a bad home investment do so more comfortably.

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

#67

Post by loftyai »

onlyrealcuzzo wrote: post #63
loftyai wrote: post #46

Earlier quoted context omitted.

Thanks for your question! I believe my main post or the responses might have been unclear. If so, my apologies. But your understanding isn't correct. Other companies are not insuring your downside. We are the only counter party you have. The problem is if a recession happens, then a lot of our properties actually decline in value. As a result, we might not be able to pay you back. So to make sure we can pay you back…

That's more clear. What happens if the house goes down 25%? I have coverage on the first 20%, and then I'm liable for the other 5%?

Any loss above 20% will be covered by the options purchased at the inception of the contract that go up in price if the real estate market suffers a larger drop (>20%).

So we personally guarantee up to a 20% drop with our own capital and use financial instruments to hedge any drop greater than 20% so as to make you whole regardless of the size of the drop.

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

#68

Post by z2 »

w457uiw4gftyi wrote: post #23
malloreon wrote: post #5

Earlier quoted context omitted.

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.

This is a good point. What if one spends $20,000 fixing up a property, and that contributes to what is ultimately a $50,000 increase in appraisal value?

EDIT: There is an existing response from another comment thread:

>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.

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

#70

Post by rog211 »

loftyai wrote: post #54
rog211 wrote: post #44

Do you use all public data like census, BLS etc. or do you have paid data as well?

We do not use census data, because they are extremely outdated. It's part of the reason we can make accurate predictions before other companies can, since they do look at census data. We use alternative data, which has recently become popular in the finance industry. For example, if you ask executives at a big company what their profit outlook is, they will always be optimistic, otherwise, their stock might decline a…

Thx for the response. We are trying to use data to help understand price movements in my own properties and I was trying to use ACS5 data, but when you get into obtaining access to tax record data it can get expensive quickly. Are you guys using any tax record data to obtain housing prices or ACS5 to get median income?
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