Several years ago I wrote an article entitled:
You Will Never “Find” A “Good” Deal Again
The theory was that you would need to ‘create’ deals rather than just ‘find’ them. This was because the internet and related technology make information ubiquitously available so when you look at a deal on your computer screen, many others (maybe hundreds of others) are looking at the same screen. Accordingly, your chances of outperforming on that specific deal are very low and your chances of outperforming on a long-term basis are essentially zero (other than by statistical variations of luck).
Accordingly, I wrote that you need to figure out how to ‘create’ value since anyone can ‘find’ it.
I still think that of all the things I have written as The Real Estate Philosopher®, it was my most important article. It is still the best advice I have given both to myself and to the players in the real estate industry.
Well, I am going back to this article to say that – thanks to Artificial Intelligence -- things just got worse – or maybe better – depending on who you are.
Before you read on, I urge you to read the original article as it sets the table for the rest of this article.
This article builds on the prior article to make the point that Artificial Intelligence (AI) is altering the deal creation universe significantly.
Now I am not saying we should all run in fear that AI is coming and you will be rendered obsolete!!!! But I am saying that AI makes the prospect of long-term outperformance a notch harder.
Consider the evolution:
- In the old days you ‘found’ a deal and worked it
- Then you had to ‘create’ deals (as per my last article)
- Now – AI can help just about anyone create a deal.
If you don’t believe me, pop deal creation questions into ChatGPT and all sorts of ideas will pop out.
For instance, take these two examples:
- I want to develop a multifamily property in Newark, New Jersey, that will perform better than average; what should I do?
- I want to build a shopping center in Newark, New Jersey; where are the best locations so that my retail tenants will outperform?
Note that the foregoing examples were deliberately vague and still the answers were interesting and chock full of information, albeit mostly obvious information that sophisticated players would already be aware of.
But if you consider yourself sophisticated, consider now that someone who wouldn’t have a clue what to do now at least knows everything that ChatGPT just came up with just by asking.
And consider if one fine-tuned the questioning to be site-specific or to add in other variants and variables. If so, the answers would presumably become more and more useful and educational to the reader.
This may bring you up a bit short as you realize that one of the competitive advantages you had – from Porter’s Five Forces; namely, the ease or difficulty of competitors entering your industry – just became a lot worse for you.
So now what?
I think the answer is you have raise – or modify -- your game.
Notably, as I wrote before, AI is not a business; it is just an augment to business.
At heart, AI is a tool – just like a primitive calculator. It sifts zillions of data points to come to conclusions and – happily – its biggest weakness is in applying itself to unique situations. And – more happily – the sine qua non of real estate is that it is unique. So – in the words of Monty Python – ‘We’re not dead yet.’
So, even though AI can “create” deals just fine – as the above shows -- my strong suspicion is that at least right now it will have no clue about how to “create good deals,” and that is where we humans can still add great value.
How would we do this? Largely, the old-fashioned way; namely, by distinguishing plain old ‘created deals’ from ‘good created deals’ through the use of our vision, our brainpower, and our ability to interpret unique real estate situations.
And, getting granular, it would make a lot of sense that when you are doing this good deal creation process, you yourself use AI to challenge assumptions, sift for thoughts and ideas, and use whatever information is gleaned with the use of this powerful tool. I mean why not see what sifting trillions of data points come up with – maybe you missed something.
You know, as I write this, I am going to coin a phrase that I think hits the heart of it:
AI is at heart a Glorified Spell Check!
Said another way, you create your good deal and then use the AI tool to see if you missed anything or got anything wrong. Also, it might help you source locations, assess demographics and do a lot of other background work as well.
So – to spell it out:
- We aren’t dead yet – AI isn’t going to kill us
- AI for real estate is a useful and powerful tool, i.e. a Glorified Spell Check
- We should raise our game to ‘create’ deals through our vision, our brainpower, and our ability to interpret unique real estate situations and create good deals
- And along the way, we should use AI (the Glorified Spell Check) to augment the chances of success
Before I finish, I have another thought, which is that using AI makes it even easier to chase average performance. As noted in a bunch of other articles I have written, there is nothing per se with average performance. Many people seek exactly that in the stock market through index funds and similar investment themes. It is not immoral to seek that in real estate.
AI will make out-performance more difficult for most people but, used properly, potentially make outperformance easier for those with the combination of creativity, vision, brainpower, and willingness to take chances in seeing around corners.
I wish everyone the greatest success.
Bruce Stachenfeld aka The Real Estate Philosopher®