Categories: Podcast

95 – Using AI to Predict The Best Areas To Invest For Massive Profits with Jerry Chu

Synopsis

Jerry is the CEO and co-founder of Lofty.Ai, a prop-tech startup company in the Bay Area that uses artificial intelligence to predict rapidly appreciating locations. He’ll share with us how his software is able to accurately predict these locations and how they’re so confident in their business model, that they’ll partner with investors on the deal and will guarantee their loss if the deal isn’t profitable in 3 years!

Key points

Using AI to help in real estate investing decisions

Jerry explains that Lofty AI, a technology startup he founded, exists to help investors and homeowners alike to make informed buying decisions. Here, an AI algorithm vets and recommends properties which it thinks have the highest likelihood of experiencing rapid appreciation over the next few years. It gives more confidence to potential buyers to invest in it early on.

Algorithms are more efficient than humans

Bots, or AI, are more disciplined than humans when it comes to deciding objectively. That is because they don’t have any greed or fear built into them that we humans have. Jerry shares how his experience with automated trading eventually led to him adopting the same principles in real estate investing and built a company out of it that he wants to share with other people.

The main goal is to get in early

The whole point of Lofty AI is detecting in real time the growth of neighborhoods so one can invest in it early on and gain massive returns. And so one factor that the AI is continually watching out for is if a neighborhood is undergoing revitalization. It turns out that if a neighborhood is undergoing revitalization, that neighborhood will start seeing an exponential growth curve on most of the properties within it typically within 3 to 5 years.

Explaining the revitalization process

Jerry explains that properties in a neighborhood rise in value when it undergoes a revitalization process. It basically has 2 waves. The second wave is when a lot of people have already caught the trend and find these areas an excellent place to live in. Here, people start moving in and live in these neighborhoods. The effect is that it builds up rent prices. However, what actually makes these places a good place to live in the first wave of people who moved in. These people just got priced out of different areas. They are not wealthy people but they bring in a diverse set of skills that makes the neighborhood vibrant and revitalized that people start noticing it.

On leveraging data

Lofty AI uses even the most peculiar data points to make a cohesive view of the properties in a neighborhood. They leverage data points from the kinds of pets in an area, weather patterns, purchase decisions of the residents, even trending topics posted on Twitter, so in the end, help people make smarter decisions.

The early stages of a startup are challenging

Jerry shares that getting funding and investments is a challenge for startup companies especially in the early stages because they can’t provide anything tangible to the investors yet nor can they show a convincing background and previous startup experience. Fortunately, Y-Combinator’s program was able to help them get a boost in their funding and reputation.

Validation is an important part of the process

Lofty AI uses alternative data, as they call it, to validate data as far as 50 years back. They are also backtesting other people’s research data and reports for the past 5 years. They also use their own data for the past 3 years. Basically, they are looking for properties that within a three-year timespan they predict will go up 40-60% in value; all these relative to other areas. That or at least properties that are doing way better than other neighborhoods in a down market.