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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

#71

Post by ttcbj »

This is the first time I have ever seen an early stage company include Saint Louis in anything, so, thanks for that ;-).

That said, you say your market is:

"Lofty AI is best for people who are: 1. Thinking of buying their first home, but are nervous about losing money. 2. Looking for higher returns than normal by buying properties in an appreciating neighborhood early."

1. I wonder if people who know they have to sell in the next three years, but don't want to sell today (e.g. a work move) are also a target market. If I know my job is going to move me in 2 years, I might like to use your service to retain 80% of the upside, but insure against downside when I sell.

2. I once read a book about real-estate investing, which said that the real way you make money is to buy rental properties with poor cash flow, 'fixup' the tenants to improve the cash flow, and then sell, repeatedly. I wonder if your appreciation-potential-evaluation/downside-insurance model applied to rental properties for sale, combined with coaching/tools for aspiring landlords, might be attractive.

It seems like right now, you are primarily using the purchaser as a source of capital, and other comments are saying "why don't you just raise the money yourself?", but if you were also using the purchaser as more like a franchisee, someone who is actively working to improve the cashflow of the property by upgrading the tenants with your (automated) advice, that might create a more interesting relationship where you have more room to add value (its more complex to analyze multi-tenant rentals, its more complex to choose high-potential landlord partners, etc).

Random thoughts. It's a very interesting idea, very original.

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

#72

Post by loftyai »

tryitnow wrote: post #64

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…

Customer testimonials is a great idea! Will add those to our site when we get a minute to do so.

As you said, they would probably go along way towards providing some additional comfort to any one who has some interest but is cautious about moving forward.

The questions you raise regarding our business model are good ones. As mentioned elsewhere in the comments, a fund is something that would be interesting but that we just don't have the capital for at the moment. Furthermore, our initial motivation for creating Lofty was to address the pain point of people wanting to buy a home but being cautious about the risk. As such a pivot to a fund, while similar in nature (and perhaps simpler in some ways), would be a pivot from addressing a real pain point we see in the market to just becoming another real estate fund and is in part why we are hesitant to do so, on top of the higher capital requirements.

Appreciate the feedback!

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

#73

Post by findjashua »

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…

my guess is that they're buying put options on the shiller home-price index, at a strike price 20% below the spot price.

though, those indices are only granular at the city level, whereas during a recession all neighborhoods in a city don't drop in value by the same rate - eg for bay area in 2008, east bay got decimated, whereas palo alto/peninsula barely dropped 5%.

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

#74

Post by loftyai »

SimianLogic2 wrote: post #52
loftyai wrote: post #39

Earlier quoted context omitted.

Thanks for your question! We decided to do this model, because we originally sold our predictions and analytics to larger investment funds, but we noticed that when our predictions came true, we left so much money on the table. The funds were making millions of dollars on one deal and they were never going to give us any percentage of that. It was also really hard to convince a lot of these people who were operating…

I did. We were out-of-towners at the time, so I would use that to build a strike list of 10-20 properties. We would fly in and do as many visits as we could schedule in a weekend. Currently at 8 doors (that SFH, a tri, a quad), but now that we live in the area I typically just run one or two at a time in a spreadsheet instead of cranking through 100 in one go. I find the list much more interesting than the insurance…

Totally understandable that $100/month may be steep for a nationwide list when you would only want Atlanta. We do plan to add a cheaper tier where you can select just one or a few cities.

As far as having a Zestimate like tool - most of our models have focused on predicting future appreciation. That being said, our instantaneous pricing tool often gives similar estimates to Zestimate but differs from Zestimates a decent amount of the time. I know Zestimate reports having quite a high accuracy but anecdotally it can be way off, especially when comparing the Zestimate for a property to what it ends up being listed and sold for. Part of that is i think is, as you mentioned, there data is better than nothing. We have recently begun tracking our internal instantaneous pricing estimate VS zestimates for properties before they go on the market and comparing who was closer to the sale price so that will be interesting to see.

Appreciate the feedback though as we are looking for the best balance between sharing insights and data and protecting it so as to generate the strongest leads with the highest conversion rate.

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

#75

Post by loftyai »

onlyrealcuzzo wrote: post #61
loftyai wrote: post #49

Earlier quoted context omitted.

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???

Many large market makers issue these instruments.

They are not traded OTC and thus would not face liquidity problems like the OTC instruments people couldn't offload during the GFC (specifically like those guys in the Big Short).

As far as what the instruments actually are: they are puts on broader market REITs/ETFs as well as localized ones. We cannot name the specific instruments as we do not want their prices being bid up.

Hope this clarifies and of course happy to answer any more questions you may have!

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

#76

Post by simonebrunozzi »

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…

> As a result, we might not be able to pay you back

This is an absolute non-starter.

Sorry to be blunt, guys, but if you can't cover your promises, they aren't promises.

Your customers should be nuts to agree with this. Or misinformed. Again, sorry, I don't want to bash you, but what you are offering is simply too bad for your customers.

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

#77

Post by DoreenMichele »

simonebrunozzi wrote: post #76
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…

> As a result, we might not be able to pay you back This is an absolute non-starter. Sorry to be blunt, guys, but if you can't cover your promises, they aren't promises. Your customers should be nuts to agree with this. Or misinformed. Again, sorry, I don't want to bash you, but what you are offering is simply too bad for your customers.

And then it goes on to say:

to make sure we can pay you back we buy financial instruments on the open market, kind of like buying a stock of apple for example. These instruments work in a very interesting way. Their prices go up, if the real estate market goes down. Their prices go down, if the real estate market goes up.

So, with these instruments. We can ensure that in the event of a recession, we can still afford to pay you back

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

#78

Post by dragonwriter »

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…

> The problem is if a recession happens, then a lot of our properties actually decline in value.

So, you've hedged against a broad real-estate market decline, but you aren't just making broad, representative real-estate market investments, you are investing in properties selected by the combination of your algorithm and customer choices. There is no guarantee that the subset of the properties selected by your algorithm that also appeal to buyers interested in your product will perform as well as the general market (your algorithm could turn out to suck[0], your customers could simply happen to select the worst of your algorithm’s recommendations, or an unpredictable event could occur which negatively impact values in a subset of the market which just happens to disproportionately correlate with the properties your customers selected.)

[0] And, sure, you think it doesn't, but the problem with any ML algorithm that is supposed to outsmart the market is that the market is full of people using tools like that to try to outsmart the market.

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

#79

Post by loftyai »

eaenki wrote: post #69

Since your model consistently beats the market and you can hedge at city level, Wouldn’t you be better off just raising money for an hedge fund that goes long and short with some leverage? It’s a cool idea anyway, good luck

It's certainly something we have considered.

One issue is the capital raise. On top of that we really wanted to address the specific pain point of people wanting to buy a home but who cannot afford making a bad purchase. As such a pivot to a fund model would be a pivot from our initial motivation in starting Lofty. Nonetheless, it's an interesting idea.

Appreciate the feedback!

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

#80

Post by SOMA_BOFH »

DoreenMichele wrote: post #77
simonebrunozzi wrote: post #76

Earlier quoted context omitted.

> As a result, we might not be able to pay you back This is an absolute non-starter. Sorry to be blunt, guys, but if you can't cover your promises, they aren't promises. Your customers should be nuts to agree with this. Or misinformed. Again, sorry, I don't want to bash you, but what you are offering is simply too bad for your customers.

And then it goes on to say: to make sure we can pay you back we buy financial instruments on the open market, kind of like buying a stock of apple for example. These instruments work in a very interesting way. Their prices go up, if the real estate market goes down. Their prices go down, if the real estate market goes up. So, with these instruments. We can ensure that in the event of a recession, we can still afford…

> Their prices go up, if the real estate market goes down.

Hopefully they provide more detail here.

I'm old enough to remember 2008 and recall many financial instruments with a traditionally inverse correlation to each other behaving unexpectedly. Similar unexpected behavior led to the LTCM crisis in 1998.

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