The Science of Flipping - Will AI Take Over Real Estate? Here’s the Truth...

Starting point is 00:00:00 Welcome back to the Science of Flipping Family. This episode is all about AI. I just recently had the blessing and fortune opportunity to be speaking in front of a large group of real estate investors from hedge fund managers to syndicators to small fix and flippers. And the entire subject matter was about AI. How is AI going to affect our precious real estate vertical? And the cool part about this event is there was three other speakers. So to speak, we had a panel that we really had a lot of time to answer

Starting point is 00:00:44 different ways that we believe AI can really impact us. And so I want to give you guys a little insight on what went down on this panel and how we were able to show AI being so powerful in the real estate space. Now I know AI is kind of that key word right now and it's the buzzword and everyone's talking about AI and what you know platforms can do what and trust me there everyone knows the major platforms I get that. We didn't get too far into the major platforms like chat GPT. Now we did talk

Starting point is 00:01:22 about prompt AI right right? Where you're prompting certain AI technology to do certain things, we talked about it. But really, where we took the conversation was in a much larger scope, a much larger frame of the impact AI is going to have on real estate as a whole. One of the first questions the moderator asked us as the panel was do we believe that AI is going to basically take over the space for real estate? Which depending upon where you're at in your journey of real estate,

Starting point is 00:01:59 that could be something you're thinking about. Maybe it's not, but it is something that some of the big players, the hedge fund managers, the very, very large syndicators, some of the banks, they had intrigue on that question. And the reason being is because if some of these larger players, the hedge funds, the banks, the syndicators, insurance companies had a really big intrigue on this question. Property management had a really big interest on this question because some of these larger players and I'm talking about

Starting point is 00:02:35 national property management, not mom and pop. I'm talking about national because they still rely so heavily on human capital. Okay. And so I actually was the first one that spoke up about this. And I kind of went off. And the reason why I went off is because I believe, and it's just an opinion,

Starting point is 00:02:56 I believe there will be no way to fully automate the real estate space. Now, do I firmly believe AIs come and is going to play impact and impact the real estate place? Yes. It's just too big, too smart, moving too fast. It is going to have a massive impact. I'm not ignorant to that. But still my belief within the space is there's going to always have to be some human component inside each transaction, right? We were talking about title companies was another one that had a massive interest in understanding his AI just can take it over. And let me give you my perspective on this one thing.

Starting point is 00:03:36 I run a company called rocketly.ai rocketly.ai. I built a company with my co-founder and you guys should check it out. If you are a small operator in the real estate space, I'm plugging it now. Rocketly.ai. It will help you massively if you're doing any level of marketing spend to your company. Okay. Now, so I'm very familiar with AI, the impact of AI and where it can go. But I don't believe for the operators and I'm talking about the people operating the insurance companies, the title companies, the real estate, you know, mom and pop, fix and flippers and even the hedge fund companies, the people actually operating it.

Starting point is 00:04:20 I don't believe they'll ever be able to be fully removed. The reason being there's a lot of nuance within real estate. I don't believe there'll ever be a one size fits all analysis AI component. This question led in directly, you know, the question regarding is AI going to take over the real space real estate space led indirectly to you know is there a program or an AI that can just make analyzing properties faster inaccurate that one task alone in my humble opinion and listen I'm not the smartest person out there. I'm not the sharpest tool in the shed. I just have a lot of experience in real estate. I don't believe based on the nuance of real estate, right?

Starting point is 00:05:13 A storage facility versus apartment, a four unit versus a five unit, a single family asset versus a duplex, a 400 door complex versus a 1200 door complex. There's so much nuance and there's so many people on the money side, right? The people who invest, the companies that invest, the hedge funds that invest, that have different buy boxes. They have nuanced criteria that will fit their buy box. I just do not believe that there will be any type of technology that is a one size fits all.

Starting point is 00:05:50 Do I believe there could be 42 versions that might be implemented? That might be a possibility. But then my point to this entire scope of questions was you have to inspect what you expect. I'll say that again. You have to inspect what you expect. So if you expect this technology to be a hundred percent accurate a hundred percent of the time, the only way to know that is if you inspect it manually with people that it hit the target on a bullseye, right?

Starting point is 00:06:26 And so it was a big talking point just about the component of analysis that I just really firmly believe there could be 42 or 4,000 different versions of some automated bot that is going to calculate the returns and do all this kind of stuff. Some of it is already out there. Do I believe this can take over now? Right. I just, anyone that is going to be investing in the asset, anyone that's going to be putting the money out. And that includes hedge funds, small mom and pops, et cetera.

Starting point is 00:06:57 They're not going to a hundred percent rely on technology because technology itself can fail. Right. That is, it's foolish to think that just because technology is a hundred percent accurate and so you need to inspect what you expect all the time and that goes through all your business etc now the other component that I said really heavily makes me pretty firmly believe that AI cannot take over the real estate space is the human human component on negotiations. Let's just make the argument that there there's enough AI out there that we do get to a place where all analysis is done via AI.

Starting point is 00:07:45 but we do get to a place where all analysis is done via AI. Okay, well now what? So you just send over an offer via technology, okay, and then who's receiving that offer? Is it technology? Well then, who owns the asset? Probably people, probably a company, probably a hedge fund. You think they're gonna allow technology to say yes or no to whatever offer they come through. And so again, the hand to hand negotiation component, and I

Starting point is 00:08:13 believe this to be in all spaces, I believe always should be a person. I believe it should always remain in our hands, because I believe negotiations and sales in general There needs to be empathy there needs to be emotion There needs to be some stuff that just a black and white technology bought Although sure you can make an argument that All these voice a eyes are just as good. I just don't believe that for a second. They're fine for what they are, but they aren't ever going to replace us, right? That's my belief.

Starting point is 00:08:53 This went into the conversation about title companies. Title companies, you know, there's always been conversation around even not Bitcoin, but talk blockchain, blockchain replacing title companies, There's always been conversation around even not Bitcoin, but blockchain. Blockchain replacing title companies, replacing escrow officers. And all this stuff can now happen on the blockchain. So that's been happening for years. Now we have AI technology. Now everyone's leaning into this idea that, you know, okay,

Starting point is 00:09:21 well now we can remove escrow agents and title agents and all these different things. I got to be honest with you guys. I don't see that happening at all. Now again, I'm not saying that there aren't going to be components of AI or even blockchain coming into the real estate space and playing a part. But this crowd in our room filled up fast. If you guys have ever been at these conferences, this was the IMN conference, not the Inmin, but the IMN.

Starting point is 00:09:49 There are some rooms that have eight people and then some rooms who have, you know, a hundred people. Our room had a hundred people. Everyone wanted to hear about AI. And I just, again, believe that the nuance of title insurance, coverages, going and finding, you know, any liens, there's a lot of technology that can do this stuff, but is largely dependent upon human capital, human resources to get the job done and over the finish line.

Starting point is 00:10:22 If you've ever done deals, you know that, you know, at the closing table, it can be frustrating. Buyers don't show up. Sellers don't show up. All sorts of different things, right? It's not just spitting out, you know, title insurance in a HUD, right? There's actual, this is why many states, fiduciary states, there's closing lawyers, like quite literal lawyers, right? And so I just fully dismissed this idea of title because I just think, again, just like anything, there's not going to be a robot transacting the deal, just like sales, right? Just like negotiation. There's just not going to be. And by the way, I sit here today, the year's 2025, right?

Starting point is 00:11:08 Like, okay, fine. In the year 20, 90, maybe, maybe this episode will be totally obsolete. But the reality is I believe in my lifetime in the lifetime I'm going to be doing real estate. I don't believe it can fully take it over. And quite honestly, if it does, I think we have much bigger problems and I think our society is going to change so drastically.

Starting point is 00:11:32 And I'm not trying to get my opinion too far on this episode, but I mean, I just think society in general would be in a way different place if all of a sudden AI and technology and blockchain just fully take over all this stuff. As many of you know, I'm constantly on the move, juggling multiple businesses, traveling, and ensuring I get my morning workouts in.

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Starting point is 00:13:00 Please support our show and tell them we sent you. Smell fresher, stay drier, and boost your confidence from the head to the toe with Mando. Again, if you just think about the transaction of a single family home, let's remove the hedge funds, let's remove insurance companies, let's remove title companies. Just think of your home, your transaction. Do you think you have some feelings, emotions in the idea of selling your home? Some pride of home ownership, some frustration of your home, whatever it may be. Do you think that plays into the role of how you would sell your home? And the answer is going to be of course, right?

Starting point is 00:13:40 And so it kind of just boils down to that basic concept of think about your own home when you're thinking about can AI take this industry over? Is AI, we went all the way into property management, right? Is AI fully gonna integrate into property management so that there's no human component? How? When the two people that either own the home or live in the home are people and there's emotion and there's stuff that goes on, how is AI gonna take this over? Right? And I do believe AI can play a part in some of these bigger companies like insurance, right? So that they can underwrite a property a little bit quicker on the location and, and you know,

Starting point is 00:14:33 stuff of that nature. Is it close to water? Is it not close to water? Are there fire hydrants around? I'm very aware that there is going to be components AI can play within insurance, title companies, property management, even building these buy boxes. I'm aware of there's a component of it. I would dismiss the entire idea that it's gonna be fully taken over. Now, I'm not the biggest tech person. I'm not the biggest AI person.

Starting point is 00:15:02 There are people listening to this right now. You guys are emphatically way further down the road on understanding and learning AI. You may be fully disagreeing with everything I'm saying. You may be thinking AI is coming over and taking over everything. I'm okay. That's fine. I just, maybe it's intuition. Maybe it's a gut feeling. Maybe it's just the concept of again owning your own personal home The feelings you have about your personal home if I were to sell and I'm not looking to sell You know, I have a motion behind it if I am met my emotion is met with a black and white cold machine a bot AI whatever

Starting point is 00:15:43 Then I'm I'm going to go cold. And a lot of times then we're going to have a standstill whether we're going to sell something because it does become black and white. It doesn't become emotional. I'll give you a short story real quick about how I bought my home. It was a for sale by owner on Zillow. Very difficult neighborhood to get in. There was nothing listed.

Starting point is 00:16:05 And I said, Oh, wait a minute, maybe there's people selling it for sell by owner, not on them less. So I found a beautiful home. I live in it. I bought it right. The reason I was able to buy it is because I reached out to the homeowner directly. The there's it was currently an escrow with a buyer and the buyer was kind of balking a little bit and wanted some things. The was kind of like I don't really feel like doing this I built a very good relationship with the the seller the seller basically said Justin if you are 100% in and you're willing to to put a $40,000 earnest money deposit then I'm going to draw a fine line in the sand with this buyer I'm not going to be giving he's asking for a lot.

Starting point is 00:16:45 I'm not gonna be giving is a yes or no on my side and he is gonna either have to accept it or not. The buyer did not the buyer wanted I forgot what he wanted, but he wanted some things. So it fell out escrow. I immediately wired in $40,000 as an earnest money deposit and went through my due diligence of basically I only needed 10 days because I knew what I was looking for I had an inspection here it passed inspection from roofing to electrical to plumbing etc etc I then wired in another $400,000 for my down payment and we bought the home now how would a bot have been able to handle that?

Starting point is 00:17:27 A bot would have been able to be black and white. There would have been no nuance. There would have been no subjectivity. There would have been nothing. And I just don't believe, ladies and gentlemen, that AI can come over and take over our industry. I believe agents will still be around for a very long time, although again, even with everything that's going on with the agents, I

Starting point is 00:17:50 believe there's some nuance that will happen with agents. I believe their businesses will change over time, you know, and so I don't think there's a black-and-white answer, except this is what I do believe to be black and white. AI will not 100% take over our space. Can AI be very instrumental in certain things? Yes, that is the black and white. Now the some further questions that went in, this is very cool to hear from the property

Starting point is 00:18:22 management side is understanding and evaluating risk. That was very cool to hear from the property management side is understanding and evaluating risk. That was very cool to hear is understanding how do you reduce your downside risk, whether you're buying rental properties, whether you're buying fix and flips. And we had a very large national property management company that was on there that has a basic tech company. As a matter of fact the entire thesis for this property management companies you can run property management via technology with very little to no human capital and so I started listening to

Starting point is 00:18:56 how they presented their ideas and I found it to be very intriguing right that all the underwriting for the tenants could be done through technology and AI and bots. I understood, you know, kind of all their points about making sure again, the downside risk of a bad tenant, how you can basically use all the screening and all these different things, how you can find tenants through technology. And then you can find tenants through technology and then you can manage it through certain levels of technology and then kind of the point I brought up as a landlord. And I asked, this is a panelist that I basically asked him, and it was great by the way.

Starting point is 00:19:39 I basically just said, hey, when it's time for said tenant to leave, is there going to be technology or a bot that's going to come in and give me a number of how much money I need to spend to repair or fix the home as they lived in it for 2345678910 years? He said, well, now that there's going to have to be a contractor involved that kind of gives you an estimate. And I said, okay, fair enough. And I only asked not to be rude or to, you know, I just asked because I just believe as much as we can systemize screening

Starting point is 00:20:14 a tenant, as much as, and by the way, again, is the, you know, proper expectations, you need to inspect what you expect at all times. So I didn't want to, you know, pepper him, but I would make an argument, you know, letting technology simply, you know, underwrite whether a tenant is worthy. You know, ladies and gentlemen, I hate to say this, but they're not the most scrupulous people out there. Doctering some documents and, you know, PDF editors and all these other things that people can submit to technology and have no human component.

Starting point is 00:20:56 I don't believe that to be the best decision, right? You know, I know that people out there doctoring documents and income and, and whatever the things are, they can go out there and there's enough, again, technology that you can make it look pretty seamless. I mean, I just remember COVID and people were saying that they were taking their positive COVID test and just editing it on whatever I'm guessing PDF editor and turning it negative and submitting it. And then they would be able to travel or whatever the case like this isn't that hard to change things so then we're talking about allowing a

Starting point is 00:21:35 tenant to occupy one of my rentals that all we did is allow technology to say yes they have the income and yes, they have the credit. Is that really where we want this to go? And I'm gonna argue no. This is again, I didn't want to pepper in myself. I just, you know, knowing what I know about finding tenants and filling tenants and having tenants and dealing with tenants like, holy molyly like if you are just gonna let technology make those decisions I believe

Starting point is 00:22:12 on a pretty large percentage basis you're gonna come into not the tenant you wanted right. Again this is and maybe I'm old school guys maybe you guys are listening this and say Justin I totally disagree I think this is gonna be totally I'm old school guys, maybe you guys are listening to this and say Justin, I totally disagree. I think this is going to be totally easy or, or, you know, it'll get to this place. I just believe you want great tenants who won't trash your home and will pay on time. Allowing tech to, you know, make that decision for you is to me pretty short-sighted. This goes back to inspect what you expect.

Starting point is 00:22:46 If you expect technology to make that decision, then you still have to inspect it. Well, guess who's inspecting it? The people, right? We had a great, there was another panelist in the insurance space and he had some really good points on how impactful tech will be in insurance. That was probably the most enlightening thing for me that I thought was so cool was the insurance play and how AI and technology are gonna play such a massive factor within how people under or how companies underwrite

Starting point is 00:23:20 assets and how it could potentially get lower costs because I think we're're all aware if you've been in real estate here for the last year and a half or two years, you understand what has happened to insurance. I mean, it's just insane. My own home insurance is insane. Uh, let alone all the rentals I have and things of that nature, which, you know, at the end of the day, it changes numbers, right? Insurance increasing changes the profitability, it changes, is this asset going to be good?

Starting point is 00:23:49 Is it not going to be good? And so I thought it was really quite interesting to hear the perspective on insurance and, and again, because it's underwriting risk, essentially, it can take a whole lot of data points that are already within the internet and technology and within government, the cities and counties information. And so I thought that was really important and it's all important,

Starting point is 00:24:18 but I thought it was really interesting, I guess. But then as a whole, I think the entire panel and the point I was kind of making really resonated with most people is As a whole humans will be still a very large part of this space Someone brought up a great analogy like AI and technology is kind of like wine Not just in the sense that it's going to get better with time, but also there's different varietals, there's different flavors, there's different types of grape, there's different ways to make the wine

Starting point is 00:24:54 in different seasons. And so there's a lot of, again, nuance to just the idea of AI within our space. It will never be a one-size-fits-all. I believe we all agreed to it will never be a one-size-fits-all. I believe we all agreed to never be This one type of platform that's gonna be a one-size-fits-all serves everybody Because again what I brought up on the beginning of this there's just so much nuance now Before

Starting point is 00:25:19 Well, let me say it this way. I do believe you need to get smarter on AI. I do believe you need to understand it I do believe there's a very big value in it. So I'm not sitting here shitting on AI is like a bad thing. I just believe that there are small components within real estate that AI can be very good at. It will not take over insurance. Well, insurance actually felt like it would be faster to take over, but it won't take over title. Well, insurance actually felt like it would be faster to take over, but it won't take over title. It won't take over realtors. It won't take over underwriting. You know, it won't take over the human component. And so, but it doesn't mean you should be ignoring AI. Most of my team uses AI on a daily basis.

Starting point is 00:26:05 I don't day to day because a lot of my, frankly, seat in my companies is a lot more of the people side, meetings and Zooms. But even that, something like the firefly.ai, you know, that component on Zooms is very helpful in, you know, recording it, having it being a written version so someone can review, you can throw that into chat, GBT, you know, get a Cliffnote version of what went down for the, for the meeting. I mean, there's, there's just a lot that should be adopted by many of you listening to this right now, but it doesn't mean, this goes back to the thing I'll tell you all the time. It still takes you to do the work, right?

Starting point is 00:26:50 I sat down with Offerpad's head contractor while I was at this conference and talking about construction. And I mean, obviously there's just no way that can get removed. There's just not, I know they're building printed homes now. I get it. I just don't believe there will be a contractor,

Starting point is 00:27:13 like who's going to do the inside, who's going to do the electrical. It's just going to be needed, right? There's going to be people needed in the construction side. And I say that because one of the things him and I agreed on heavily is, is the people that are trying to systemize their business to completely remove their business and exit, so to speak, and just like allow all this automation to work and allow all these systems to work and then remove themselves. Those are the same people that are going to find themselves either out of

Starting point is 00:27:43 business or in a lot of financial pain. A lot, right? Because they didn't stay in the business long enough to find the results they were looking for. So adopt AI as far as you think you can. Don't get overly, you know, I don't know, excited about it in the sense of what we do day to day and negotiating deals, comping deals, making offers. I don't believe it'll change our world there. Can it start to help a little bit with underwriting? Yes, but again, inspect what you expect. And you know, it's going to be a fun journey with where tech's going.

Starting point is 00:28:16 Scary journey, frankly. I'm not the biggest tech guy, so it is a little bit scary to me to think about all this. I definitely don't want Terminator to be the end result, or Terminator 2 to be the end result of this, where you have technology and all this stuff. So anyways, take it for what it is guys. AI is here to stay. It's not going anywhere. Learn the things that are going to be good for you.

Starting point is 00:28:41 But at the end of the day, you still got to do the work. So if this was helpful, if this was interesting, you think two or more people need to hear this, please share this episode and we'll see you on the next episode of the science of flipping.

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The Science of Flipping - Will AI Take Over Real Estate? Here’s the Truth...

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