loftyai

We do not use census data, because they are extremely outdated.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 and they may panic the market.

If you waited until the quarterly announcement, then you would be finding out at the same time as everyone else, and it's delayed information.

However, some people have found that you can more accurately predict a company's outlook on their quarterly performance by monitoring job boards and see how many open positions the company is hiring for. This allows people to gain insight and act before the rest of the market catches on.

We use the same approach but for real estate. For example, if you monitor the number of french bull dogs in a neighborhood, you can accurate predict median income values for that neighborhood before any official statistics. This is because those dogs are very expensive, so someone willing and able to spend a few thousand dollars on a pet tend to have a higher economic background.

We do use some paid sources such as satellite imagery and some data sources require you to pay for their api like our weather data vendor.

Yes, your interpretation is correct!

1. we hedge on both broader market REITs/ETFs as well as localized ones, depending on how many contracts we have in the local market.

2. Because we hedge on both, the probability of this is very low. Since a more granular hedge is an imperfect hedge due to the nature of these REITs/ETFs, it might not cover 100% of the localized recession. However, it should cover a large portion of it. So, our company will be on the hook for that remainder percentage.

We can cover it in 2 ways. Number 1, just use our own capital. Number 2, the profitable contracts in other areas not hit by recessions should be able to offset the ones hit by the localized recession.

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.

Great question! In our agreement, we set the initial sales price for the customer. However, for every 30 days it does not sell on the open market, they can lower the price by up to 5% until it sells. So, if it ultimately sells for a loss as a result, we would still provide the loss protection.

In the event that a customer wants to buy us out after 3 years. The rate used to calculate change in on paper value is derived from the median home price rate of change from that neighborhood. The value comes from the MLS and it's a rate that neither we as a company nor our customer can artificially manipulate. So, we think it's the best representation of the market change.

If the overall house market is falling, our hedging instruments will provide us enough revenue to offset our customer's losses. If it's not a market wide recession, the gains from some contracts should very easily offset some of the losses along with our own capital we use to guarantee the loss.

These methods combined should allow us to guarantee the losses in all different market scenarios.

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 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, because we can sell the instruments for higher prices than we originally paid for. We then use that profit to cover the losses our customers experience.

The way this works out is that events that would cause large declines in the property values are covered by these instruments. Which means, as a company, we just need to pay specific attention to the potential losses between 0-20% range. Here, we deposit the 20% value of the original purchase price into the 3rd party account.

In the event that our company stops operation. These hedging instruments don't expire or disappear. They are bought at the beginning of our agreement with our customer. As a result, these instruments will be passed off to our lawyers along with the 3rd party account for them to maintain. This way, your loss coverage will still be guaranteed even if we go out of business.

Is this more clear? If not, I can always elaborate :)

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?

We do have case studies, but they are bad in the case of presentation. We are a small team so when we decided to keep our analytics internal facing, we didn't spend anytime producing marketing materials or prospectuses.

So, most of the case studies are loss values printed onto our engineer's console or .png graphs showing our walk forward predictions outputted from our engineer's notebook.

If you'd like I can dig through our slack channel to find some stuff for you. I'll check back in later to see If I can find something more presentable as well.

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.

You're absolutely right about this, and it is something we have and are considering everyday. I will be honest and say, at the moment, we do not have a perfect solution yet.

One of the things we looked into before starting the company was a paper that mentioned the Portland project, which showed that gentrification and displacement are not always synonymous. There, the neighborhood was completely gentrified, but the locals benefited greatly, because many of their home prices increased in value, and many owned local businesses that benefited from the influx with affluent people.

One of our goals is to see how we can use our data and business to make gentrification more like the Portland project. One idea has been to provide our data and analytics to city governments for free, so they can act faster in regards to setting up affordable housing.

In the meantime, our customers will be buying the homes, so someone has to act as the seller. If a local resident was the owner of the property, then hopefully, they benefit from the sale (we recommend our customers offer the "listing price" and not negotiate at all). If they are the renter, then current California laws should provide them a lot of protection.

It's not perfect of course, but we are looking for better alternatives.

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!

Our customers have 2 options. They can choose to sell, at which point, the 20% is based on gross profit realized.

Or they can choose to buy us out. At which point the 20% is based on the "on paper appreciation" calculated by using the rate of change for the median home price in their neighborhood.

If they use the latter option, they of course, will not have to pay the fees associated with a sale.

We are also looking into whether we can partner with listing agents, who will share some of the commission with us, which we will then refund back to our customer to offset their fees.

Per the operational parts of your question, it will be our lawyers who would be maintaining the 3rd party account and making sure the money gets sent to people who are owed the loss coverage.

In terms of our our underwriting process works. We do have clauses in our contract that removes our liability for act of god events, civil strife, or war. Barring these scenarios, the only other events that can move a property's depreciation to more than 20% is a recession scenario, which the hedging instruments would cover.

So, in reality, our exposure for every home is between 0 to -20%. So for every home we underwrite, we just need to mark funds equal to 20% of the property value.

Is this clear? If not, I'm happy to expand on it further?

Ah got it! Sorry for the misunderstanding. Essentially in the case of our demise, our investors are not able to claw back the money in the 3rd party account. The rights will transfer over to our law firm to maintain kind of like an estate. They will be the ones to handle the operation of writing checks and sending funds to the correct counter parties down the line.

This is a great idea! We do not currently do this, but we do take into consideration the availability of gigabit internet as well as overall connection speeds for different neighborhoods.

This has actually proven to be statistically significant for a large number of locations across the united states.

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.

Additionally, most of our customers still visit the properties we recommend before they buy, so these types of problems are usually spotted during inspection before the deal closes. This has filtered out any bad quality deals due to home conditions.

Hope this answered your question!

Hopefully my other reply answered your concern as well. If not, let me know, and I'll be happy to go into more detail.

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

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.

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.

Thanks for your interest! The ideal timeline is actually 5 years if we want to see the majority of the growth. However, since we won't be making any revenue from the agreement until at the end of the term, 5 years is too long for a startup to go without seeing revenue. So, it's mostly a way where we can see returns sooner, which is more attractive for investors.

On the plus side, our customers can choose to buy us out after 3 years, and see 2 more years of growth after, and they wouldn't have to share that profit with anyone.

Haha thanks, you beat me to it! :)

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 neighborhood's growth. We can find amenities that are even earlier indicators than Starbucks. Think your one-off local coffee shop named "Bob's coffee" or something similar.

We are focused on the appreciation potential of residential real estate, which has single family houses, condos, and town homes. However, we have noticed that in areas where home prices are growing, rents typically are growing as well. So our customers are welcome to rent out the properties for cash-flow.

We do not have data on a lot of commercial properties, but we can still underwrite the agreement on duplexes and smaller multifamily units.

It typically takes 3-5 years on average for neighborhoods to see the exponential portion of their growth curve, so our agreement is for 3 years by default.

Our share of the profit is 20% of the gross profit. So, if you had bought something for 100,000 and you sold it for 200,000 in 3 years. Then, we would get 20% of the gross profit ($100,000), which would be $20,000.

edit: made numbers in example more clear.

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, there were no tools to help us find homes like this, which ultimately led us to starting this company.