Worried that artificial intelligence (AI) will replace lower- and middle-income jobs and only create wealth for entrepreneurs?
Billionaire Ray Dalgues that AI makes the bottom 60% of Americans more dependent on the top 1% to keep the economy going. He notes that 60% of Americans can’t even read at a sixth-grade level. How, then, can they hope to compete in our increasingly knowledge-based economy?
Early warning signs only fuel these fears. A worrying one JP Morgan report points to the high unemployment rate among recent college graduates and weak job growth in many white-collar careers that AI can mimic.
What about real estate? How AI-resilient is real estate income, both active and passive?
AI-resilient real estate business models
There are dozens real estate investment nichesmost without threat of replacement by AI.
Flipping houses
No software can transform a house from start to finish. Consider the steps involved:
- Marketing to connect with distressed sellers outside the market
- Person to person sales to convince the owner to sell at a bargain price
- Assess repairs and estimate costs and revenues
- Financing arrangements
- Submitting permits
- Interviewing, hiring and managing contractors and overseeing repairs
- Work with human inspectors to sign off on repairs and approve completion of permits
- Offering, staging and marketing the property for sale
- Negotiating terms with buyers
House fins know that there’s more to it, like working with bank inspectors to release blocked draws, and a dozen other mini-steps.
Flipping houses is a profession, whether you do it full-time or part-time. While AI tools can help streamline individual tasks in that business, It can’t run the whole thing.
Investing in rental
Some rental investors effectively turn houses to themselves, refinance them and keep them as rental properties (the Strategy BRRR). It lasts just as much steps as described above.
But even investors buying turnkey rental properties have to go through plenty of steps that AI can’t do do for them, from financing to inspections to occupancy and occupancy permits.
Again, AI tools can help here and there, but rental investing is an afterthought. Anyone who tells you it’s completely passive is selling something.
Wholesale
Certainly, real estate wholesaling involves fewer steps. But it still requires human-to-human sales and negotiation.
In addition to evaluating the property and repair costs, you must convince the owner to sell at a discounted price. And you need to build a network of buyers who know, like and trust you.
It’s a fundamentally human business model, and AI tools can only get you so far.
Turn country
You can automate more of the marketing and sales for flipping land. Unlike house flipping, this is more of a paper business where you don’t actually visit most of the lots and there is no physical renovation or construction taking place.
Still, it’s a business, and AI can’t run a whole company. Leverage AI to automate as much of the business as possible, while you Ordinary make the final decisions and handle the negotiations.
AI-proof passive investments
Not everyone wants to replace their active income by starting a real estate company. Some people (like me) just now want to invest and earn passively strong returns.
Private partnerships
Passive investors can Ordinary collaborate with real estate operators.
For example, our co-investment club worked with a house flipper last year. We financed a series of flips in exchange for a cut of profits. Likewise, we’ve partnered with a specialty housing developer to build a handful of single-family homes.
We Ordinary invested as silent partners in the deals of these real estate companies.
Real estate syndications
Our co-investing club also passively invests in syndications, where we actually invest A partially owner inside a major real estate project.
The same principle applies: they run a real estate investment business, buying apartment complexes, industrial properties or mobile home parks, and we simply passively invest in individual properties.
Because we invest together, we can each put in less money, $5,000 each instead of the usual $50,000 to $100,000.
Real estate funds
Last month our club invested in a land flip fund. The operator turns over approximately 50 plots of land each year, with an average retention period time of about 4.5 months. He can’t use bank loans for these crude land flips, so he raises money privately from people like us – paying a consistent 16% return in the form of quarterly distributions.
Private notes
Alternatively, you can borrow money privately through a secured bank guarantee at a fixed interest rate.
We have previously lent money on secured notes with a payment of 10% to 16%, secured with a lien on real estate. Again, the borrowers run real estate investment companies that do that cannot be replaced by a chatbotand we simply finance the properties.
Intrinsic protections
Real estate is, well, real. It is physical and exists in the real world. People of flesh and blood are needed to build, renovate, exhibit, sell or rent.
Then there is demand. Real estate has intrinsic value: people need physical places to live, eat and produce. To some extent, they also want places to shop and work in person.
That doesn’t mean AI doesn’t usable tool for people working in the real estate sector. But AI can’t run an entire business, swing hammers or walk potential customers through a property and convincingly pitch them to it.
Real estate will always need people, and that will make it increasingly an AI-resilient haven for entrepreneurs and investors.
If you believe AI is a net threat to workers and a net gain to entrepreneurs and investors, become one of the latter. And there is no more AI-resilient industry to do that then real estate.
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