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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

#11

Post by whoisjuan »

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 going to perform as a company.

Of course, if you disappear and I don't have to honor the 20% it's a win for me, but if I buy based on your data and after 3 years the property value is way down and you're not around to honor your loss-covering promise then I'm fucked. I bought a house because you told me it was going to appreciate, but it didn't. Now what? Do you have a way to pay me back even if your company is not around anymore?

There's something about the model that doesn't make sense to me.

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

#12

Post by alex_g »

loftyai wrote: post #4
alephnan wrote: post #2

> Before starting this company, my co-founder and I had tried to invest in homes. Were you guys successful?

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,…

How much real estate investment experience is there on your team, then?

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

#13

Post by loftyai »

jpn wrote: post #9

Are you hedging with REIT options? Or home builders? Are you able to hedge specific city risk?

Yes, we actually hedge with both depending on the area the property is located in. I hope you don't mind me not mentioning the specific products, since we don't want people in the market to bid up our hedging instruments and make them more expensive for us to buy.

We can look into the portfolio for a lot of the REITs as well as the exposure certain builders have. Based on that, we can hedge specific states and cities very well. It's not a perfect hedge, but it will definitely reflect the local real estate market.

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

#14

Post by Hydraulix989 »

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).

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

#15

Post by deepnotderp »

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.

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

#16

Post by bluedevilzn »

loftyai wrote: post #6
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…

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.

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

#17

Post by loftyai »

alex_g wrote: post #12
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,…

How much real estate investment experience is there on your team, then?

Most of the real estate experience comes from our advisors. One is a prominent consultant for cities on economic development using real estate. Another started Clarion Parters, which is a massive real estate investment fund. One of our early customers, Midwood, which also a large real estate investment, actually invested in us as well and joined the advisory board.

We don't pretend that we know more than others about real estate, because we are still mainly a tech company. Our expertise is in finding properties, using data, that can perform well, which has been the case both in back-testing as well as walk forward predictions.

This is why we don't handle the transaction process for our customers. Instead, we rely on partners that have more experience in these areas than we do.

To further ease people's mind, we offer the downside protection. So, if we mess up, we pay the price, not our customers.

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

#18

Post by itake »

loftyai wrote: post #4
alephnan wrote: post #2

> Before starting this company, my co-founder and I had tried to invest in homes. Were you guys successful?

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.

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

#19

Post by loftyai »

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 with the hedging instruments are what allows us to guarantee the downside protection.

As a final layer of protection, we know exactly what our on going exposure is, so we know the maximum amount of contracts we can underwrite. We are very strict on this number and will never move above it. So, even if our company ceases operations, all of the downside protection will still be available to our customers.

Keep in mind, we also know exactly what our on going

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

#20

Post by bozoUser »

loftyai wrote: post #4
alephnan wrote: post #2

> Before starting this company, my co-founder and I had tried to invest in homes. Were you guys successful?

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,…

Congrats on the launch.

> 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.

1. what in your experience are the top 3 things to look for especially for a market like Bay Area ?

2. Follow up to 1. longer term do you think the model will do well for markets outside of Bay Area like Phoenix, Vegas etc.

2. How did you overcome the cold start problem for your models ?

(A while ago there was a podcast (IIRC from NPR) where Zillow ran a contest to reduce the error % of their price prediction model and the team that won probably ended up also using factors like direction of the sunlight etc.) 3. Given your competitors use these kind of data points, will your model rely heavily on satellite imagery etc. to infer these kind of data points in the future ?

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