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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

#91

Post by loftyai »

jedberg wrote: post #83
loftyai wrote: post #74

Earlier quoted context omitted.

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 dec…

You should track your internal estimates against Redfin instead/also. They tend to be more accurate, at least in the Bay Area.

That's interesting, we'll take a look. Thanks for the suggestion!

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

#92

Post by loftyai »

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.

Your point is very valid. Closing costs and other fees related to real estate transactions are something we do not cover at the moment.

Our belief is that there shouldn't even be all these fees for home buyers and sellers, because most of the process can be automated to a degree. At a minimal the fees can be reduced. It's early now, but we really do intend on becoming the most honest and transparent ibuyer model on the market.

As such, we are looking for ways where we could build on top of our service to help people reduce their transaction fees either through partnerships or some new service that we would provide. Partnering with listing agents, where they give us a portion of the commission, and we refund it back to the customer is one way of doing this.

But the goal is always to align our interests with our clients'. The more money you make, the more money we make. If you make no money, we not only make no money, but we might lose money.

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

#93

Post by loftyai »

jedberg wrote: post #82

Pretty cool concept! You're basically letting people buy into your real estate hedge fund. :) Something I didn't see addressed in the FAQ: Do I get to include closing costs and agent fees in my cost basis before determining your 20% cut? If not I can see a case where appreciation was minimal and I actually lose money one you get your cut because those fees eat up all the appreciation.

Thanks for the comment, but at the moment we do not cover closing costs or agent fees.

In the event that there is appreciation, but is minimal. We recommend that our client buys us out instead of selling the property. This way, they won't have to deal with the transactional costs, and with the low appreciation, the 20% cut will be very low, so it shouldn't be hard to come out of pocket for that.

As I've mentioned in some of the other replies, we'd love to keep innovating in this space and help reduce these fees, so our clients no longer have to deal with them.

Open Door is one of the companies doing a lot of cool stuff in this space, but we think there can be a lot of room for improvement. Statistically, a home is roughly 64% of the average American's total lifetime net worth, and we don't think people should have to pay so much fees on top of handling their life's most valuable physical asset.

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

#94

Post by loftyai »

rog211 wrote: post #70
loftyai wrote: post #54

Earlier quoted context omitted.

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?

Yeah data is always a big headache haha, so I feel your pain.

We use MLS data to obtain housing prices historically. We don't use government data for median income, instead, we estimate it directly by tracking social media posts from the neighborhood that are public.

We then run image analysis on them to detect features like the types of dogs people have, types of cars, and other stuff. It's not 100% accurate for sure, but it's given us a pretty good understanding of the median income for neighborhoods, and the data refreshes in real time too :)

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

#95

Post by loftyai »

findjashua wrote: post #73
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%.

You're getting warmer ;)

We also don't just hedge with options on 1 index, so a blend of hedging instruments can get us pretty close to 100% granularity. Any percentage points that are not covered in a granular manner should be offset by performing contracts, and the worst case is we use our own capital to cover maybe the remaining 1-2% uncovered risk.

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

#96

Post by loftyai »

onlyrealcuzzo wrote: post #65
tryitnow wrote: post #60

Earlier quoted context omitted.

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…

You're absolutely right about the correlation changes. However, gold's correlation to the general market was developed organically by human behavior over time. That does often change during crisis.

However, options contracts are a form of derivatives, meaning they are contracts financially engineered to hold a specific correlation. So, you can build perfect hedges using options contracts, which is what they were originally invented for. People just started betting on the markets with them, which created all kinds of risks in the market.

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

#97

Post by rubyn00bie »

loftyai wrote: post #87
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.

Sorry that the post wasn't as clear. My intention with that line was to walk people through the process step by step. Of course, we engineer the product so that we can pay people back. But I wanted to show people our thought process, which is what happens if there was a recession and most of our portfolio declines by more than 20%. If we didn't have hedging instruments, we wouldn't be able to pay people back. Therefo…

Are each contract's hedging instruments independently hedged some how? I read that you invest in markets that "go up" if housing goes down, but let's take the 2008 financial crisis how do you defend against a rolling collapse? Are the markets you're betting in truly independent from each other? How much failure in the markets can you weather? Copious amounts of secret sauce?

Seems like an awesome idea in principle...

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

#98

Post by rog211 »

loftyai wrote: post #94
rog211 wrote: post #70

Earlier quoted context omitted.

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?

Yeah data is always a big headache haha, so I feel your pain. We use MLS data to obtain housing prices historically. We don't use government data for median income, instead, we estimate it directly by tracking social media posts from the neighborhood that are public. We then run image analysis on them to detect features like the types of dogs people have, types of cars, and other stuff. It's not 100% accurate for sur…

Very cool thanks for the insights! To run you model you must have some baseline data to be able to train against median income. How do you do that?

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

#99

Post by [deleted] »

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…

[deleted]

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

#100

Post by throwawayjava »

loftyai wrote: post #67
onlyrealcuzzo wrote: post #63

Earlier quoted context omitted.

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.

Thanks, that's much more clear. I'm still confused about how you make that guarantee on the first 20%. You keep it in reserve?

Edit: generally, I wonder if you have a huge perception problem even if you've designed a responsible insurance product due to the fact that people are (reasonably) suspicious of taking on enormous amounts of counter-party risk from a pre-seed start-up.

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