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

Thanks!

1. A few of the top and more intuitive things we found in the bay area to be indicative of an upswing include an increase in food trucks and vietnamese restaurants. As well as increases in the number of social media postings about pets.

2. Yes, we believe it will. We have backtested on a ton of different markets and been tracking our models predictions in these markets over the past year and it seems to apply for most cities where these alternative data sources are present. Obviously (and perhaps interestingly) the things that seem to drive revitalization do have some constants between cities but they do also vary a decent amount by geographic area.

3. This was somewhat tricky. Obviously some of the sources we use like home prices and sales are more readily available and have existed for a long time. Others, not so much, especially for alternative data sources. We tried to choose sources that had been around longer (around a decade was a proxy) and had historical data that could be accessed via an api or scraping. This limited the list of sources we could use but we are quite happy with the list we ended up having that met this requirement.

And yes, we had looked at that competition Zillow ran and drew some inspiration from it. We do currently use satellite and street view data and are actively adding more uses for it, although we currently do not have the sunlight measurement per property integrated. I noticed that (i think?) as a new feature for homes when you look at them on zillow which was cool!

Against my better judgment, I'm gonna comment that I hate this.

This is certainly a good business/investment opportunity. If your algorithms are any good you'll make a lot of money, and you'll help your customers make money.

My problem with Lofty is that it is bad for society.

Fundamentally, this is gentrification-as-a-service. You're driving additional demand to neighborhoods at inflection points, and if it works well it's definitely going to accelerate displacement. It is true that Blackrock et al already do this and likely have similar in-house algorithms, but this will widen the market and make things worse. I'm not completely against gentrification, especially when there's development that increases market supply- and when done right that can actually decrease displacement. (an example you're probably familiar with is the USC Village. Despite the criticism it gets, it removed thousands of student renters from the South Central LA market which likely resulted in downward pressure on prices) But housing speculation like this drives up prices and only hurts poor and minority communities.

To Jerry and Max: did you consider the ethical implications when deciding to start this? I completely see the angle that you're democratizing access to an investment asset that currently mainly benefits wealthy institutional investors. I imagine, though, that a lot of people are going to see your team of young almost-all-white males and paint you as everything that's wrong with tech, and you should consider to what degree that assumption represents the truth.

Why did you decide on this business model (essentially downside insurance paid for by equity if I'm understanding it right) over something simpler like, say, subscription access to a newsletter?

What's to stop someone from signing up for the list and just buying a property on their own? (i.e. What perks are you offering that make it worth doing the deal through you? Negotiations? Acting as a buyer's agent?)

As a data point, I used to have a ruby script that would take a bunch of MLS IDs and go pull a ton of facts from Zillow and a few other sources. I would have my realtor set up a high-level search (i.e. SFH in these areas under $500k) and then take their daily emails and run them through my script to identify potentially "undervalued" properties. I still had to hand-check them after, but it was a pretty useful second filter (the MLS search being the first).

This might not be the case everywhere in the country, but typically, the seller is responsible for the agent fees. This means that if we recommend an agent for our customer, who is the buyer, that agent is actually paid for by the seller.

We have the relationship, because we do have customers who are very inexperienced and this would be their first purchase. So, a lot of them still want to have to ability to talk to an agent and ask questions about the home buying process.

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 on "gut feelings". In January of this year, we made the prediction that Compton, LA was going to see an increase in growth. We told these bigger funds and they literally laughed at us during the meeting. Fast forward to today, and some of the properties in the micro-neighborhood we forecasted showed an 18% growth in price in just 7 months.

So we decided that consumers might find what we are building to be more valuable, and they would be more open to sharing the profit with us if our predictions came true.

Our added benefit is really finding neighborhoods that people overlook, but have high growth potential. Realistically, without our platform, I would have never known about the growth or be interested in Compton, LA either.

Right now, there is a paywall to view the listings. It's $100/month, but you may cancel at any point. Additionally, if you end up signing a contract with us, we refund you all the money you've paid up to that point. If people do not do the contract with us, then they would also not be offered the downside protection.

I love hearing about people's own unique technical method for finding properties! Were you able to invest in any properties using your method?