(This advanced blog summarizes real estate investing tips and insights Lofty AI has acquired from working with thousands of investors and institutional funds.)
What is Lofty AI?
Lofty AI is a real estate data science platform. Its process can be broken down into three main steps.
- Step 1: Gather the data. Data is taken from over 50 leading indicators of the potential for rapid appreciation of a neighborhood.
- Step 2: Analyze data. We then clean and analyze the data and use feature engineering to create additional insights.
- Step 3: Make predictions. Lastly, we pass all this data through our neural networks to make accurate predictions.
Let’s break this process down a bit further.
We use artificial intelligence to show you cash flowing properties primed for rapid appreciation.
It was specifically designed for data-driven real estate investors who want an edge. This knowledge led by artificial intelligence, creates a leg-up over other investors that are going off data that may be old or incorrect.
We do that by providing you with:
Automated local knowledge.
Automated local knowledge lets you instantly know the ins and outs of every neighborhood, without actually having to be there. The obvious advantage of this automated local knowledge is that investors can now invest in real estate outside of their home city, or even home state.
We save you hours by instantly showing you the best investment properties, using this automated local knowledge, in 40+ US markets, all from your desk at home.
Otherwise known as "the holy grail of real estate investing"
Have you ever talked to an investor who only invests in one specific city, and has been doing so for some time? They might even have multiple properties within a few miles from each other.
Chances are they know all the little details about their hometown. This includes which blocks are up-and-coming, the most popular bars, which side streets are the quickest during rush hour, and so much more.
Keep in mind that the majority of investors barely use any data when purchasing properties. Most investors are basing decisions on gut instinct by driving around an area briefly or getting a tip from a realtor who simply saw more inquiries in an area or more "for sale" signs. These are not reliable methods to predict future appreciation.
Knowing these data points is only helpful when you're looking for the best properties in that particular market.
These social cues and nuances it might make it seem like a particular neighborhood is up-and-coming, or primed for appreciation. Unfortunately, these characteristics of the market are not actually data points that can be used to accurately calculate the future value of a property,
What if that particular market is actually a horrible place to invest, not primed for appreciation or up-and-coming at all? Before Lofty AI, you would have to move to a new area and spend years relearning everything from scratch. You also would have to do the important calculations about the future growth prospects of the property on your own.
This is the biggest advantage of real estate investing with Lofty AI. We are able to automate local knowledge by leveraging real-time, idiosyncratic social data.
It is as if we have millions of boots-on-the-ground analysts walking around every single neighborhood in the US, 24/7. Each analyst is picking up on the nuances and social cues that someone living there would notice. These social cues and nuances are then created into a plethora of data that can be used to calculate the potential of a market and its properties.
The kicker is, of course, we do not actually have to be there. All this information is available at Lofty AI with the click of a few buttons.
How to use Lofty AI's app for real estate investors
Lofty AI's web app for real estate investors is very simple to use. The beauty of the technology is that everyone can use the web app, even those with no prior real estate investing experience.
It starts out with the heat-map.
To form our heat-map, we use deep learning, alternative data, and over 50 leading indicators to showcase neighborhoods that contain cash flowing properties that are primed for rapid appreciation. A some of these leading indicators include:
- High speed internet usage
- Types of jobs in the area
- Certain types of dog breeds
- Instagram influencer trend patterns
- Types of crimes in the neighborhood
- The change in school ratings
- And much more
At Lofty, we feed all of these metrics into our neural networks and let the A.I. decide which data points matter more and accurately change its decisions based on how people's underlying preferences change. This gives us the advantage of being more accurate especially in more dynamic markets.
The properties (pink dots) you see above have all been vetted by our A.I., using these leading indicators.
Our models have determined they will see significantly higher returns in the future than any other properties. The social nuances and cues mentioned earlier are considered in our leading indicators to provide the user with real-time, accurate data about the future appreciation of a property.
For example, when looking at crime data, Lofty AI takes a series of data points into consideration.
At Lofty AI, we have found that crime data is often not used in the correct way by real estate investors. The traditional train of thought is that the more crime an area has, the less desirable it must be. Therefore, those areas make for bad investments.
Now, if you only care about protecting the value of your existing investment, then that would be a correct assumption. But there is really more to the story and importance of crime data.
So, if you are looking at properties for future investments, the crime metric becomes more nuanced. Therefore at Lofty, we actually do not really care about the crime count. Rather, we care about the types of crimes reported.
An area with higher violent crimes such as homicides or carjackings does indeed perform poorly over time, in terms of future appreciation. However, a neighborhood with higher numbers of crimes reported, but when those crimes are related more to petty theft or criminal mischief, actually has no to very little effect on the growth of property values. People usually only care about the crime rate in a neighborhood when these crimes are violent, especially for the safety of families.
Using this now nuanced data, our algorithms are tuned to look for areas with lower violent crimes rather than purely lower crime rates. This creates more opportunities to look at more properties, and reduces the risk of a potential investor possibly missing out on a number of great investment opportunities.
Using this data to our advantage, the properties chosen by our A.I. appreciated over 22X more than the market average in just this past year. It's simply the most accurate, best real estate investing data out there.
Once you find a property you are interested in, simply click on the image of the property. That will take you to our custom property page.
Calculating ROI with Lofty AI
Once you are inside the custom property page, you can determine if the numbers add up via our ROI calculator (pictured below).
You can calculate the following ROI metrics automatically based on your preferences. These metrics will make it easy for you to compare the suggested properties by real, visible data. Some of the most important metrics that Lofty AI focuses on are Cash on cash return, cash flow, and cap rate. The following sections explain these metrics in more detail, how to calculate them, and why they are important. Look at the picture of Lofty AI’s ROI calculator to understand how this data will look on the web app.
- Cash on cash return measures your received pre-tax cash flow relative to the amount of money you invested to acquire the property.
- Calculating cash-on-cash return is simple. You simply divide the received net cash flow for the year by the amount of cash invested.
- The formula would be Annual Pre-tax Cash Flow/Total Cash Invested = Cash on cash return
- A good cash on cash return depends on many factors of the market and should not be used alone to calculate the future value of a property.
- Also known as passive income or “mailbox money,” cash flow is the amount of money that you will acquire monthly, after the expenses of the property have been paid for from the monthly income.
- The formula for calculating this is basically, Rent - Expenses = Cash flow.
- The higher the cash flow the better the property is for investing.
- Cap rate, or capitalization rate, is a measurement used to compare various real estate investments or markets.
- It is most often calculated as the ratio between Net Operating Income (NOI) and a property's original acquisition cost (including upfront repairs and expenses).
- The formula is (NOI/Purchase Price) × 100% = Cap rate.
- A higher cap rate means the property is cheaper, but this does not mean that the property will perform well in the future.
If you have any more questions about the ROI calculations or anything else, you can also connect with an agent, directly within our real estate investment app. The agent can provide you with more background knowledge into what leading indicators were used to predict the appreciation of the properties, among other useful things. It is that simple to become a rental property owner with Lofty AI, regardless of your previous experience with investing. The
How our A.I. works
- Our models ingest data from over 50 leading indicators.
- Our A.I. learns which data contributes to rapid neighborhood appreciation and higher cash flow. Not the data that the A.I. collects is necessarily important in calculating good appreciation and cash flow. The advantage of using the A.I. from Lofty AI is apparent, in that you do not have to figure out what each data point means and how it is related to a good investment property. Lofty AI does all that work for you!
- We then pinpoint which neighborhoods are primed for rapid appreciation and higher cash flow. These neighborhoods are pinpointed on the heat-map.
- Our models then identify available listings within these trending neighborhoods.
- Of these listings, our proprietary valuation algorithm determines which listings are the most undervalued. The properties that are the most undervalued will give you a good place to start as an investor.
We will only show properties that are both undervalued and within a very close proximity to a micro-neighborhood that’s primed for rapid appreciation.
Only the properties that are in very close proximity to a micro-neighborhood which is primed for rapid appreciation and is undervalued will be shown on the heatmap, with a pink dot as their indicator.
This is the rental property investment strategy everyone should have regardless of whether you are a Lofty AI user or not. We simply make the process 100X faster and more efficient.
Our real-time data gives you the ability to invest in over 30 markets without having to acquire any local knowledge whatsoever, or ever setting foot there. That's the key!
Take advantage of this data to get the best options for real estate investing, without needing background knowledge of the best investment areas. To use Lofty AI, you simply need an internet connection! No need to do complicated math yourself, or make pros and cons sheets to find the best property for your investing needs.
Start investing in real estate today, from the comfort of your own home, without having to do any complicated calculations to find the right properties. The thing that makes Lofty AI special is the:
Automated. Local. Knowledge.
If you are interested in learning more, you can request a free demo of our real estate investing platform by clicking the button below. Lofty AI is the best real estate investing tool out there.