The Great Real Estate Repricing: How AI Is Changing the Way Investors Work

“If you’re not utilizing this correctly, you’re behind.” — Kyle Paxton, CPA

During a recent James Moore Live episode, Kyle Paxton, CPA at James Moore & Company, broke down how technology and AI are reshaping the way real estate investors identify opportunities, evaluate deals and plan for taxes. The conversation also tackled the risks of relying too heavily on AI-generated insights and what smaller investors can do right now to stay competitive.

Kyle and host Faith cover the full picture, from using AI as a deal screening funnel to the data security risks that too many investors are overlooking.

Resources

• James Moore Real Estate Services
• Your CPA’s Take on Real Estate
• Watch the Full Episode

Full Transcript

[00:02] Faith: Hi everyone and welcome to the JMCO channel. Today I am here with Kyle Paxton. Hi Kyle, how are you?

[00:06] Kyle Paxton: Hi Faith. Always a pleasure. Doing well. Thank you.

[00:09] Faith: We were chatting before this about the beginning of summer.

[00:12] Kyle Paxton: That’s right. Kids home, chaos and fun.

[00:17] Faith: You can also tell them that we’re not on our games today and we’ll work through it.

[00:21] Faith: We’re shockingly human. I know we’re not robots. Sorry guys.

[00:25] Faith: I also know it is a misconception that you’re slower this time of year. I don’t really necessarily think that’s true. What are your thoughts?

[00:32] Kyle Paxton: It’s not. The job looks a little different, but it’s no slower.

[00:38] Kyle Paxton: And maybe this is a good time for people to ask questions and get answers to things they were thinking about while it’s not in the chaos of tax season.

[00:43] Faith: Agreed. So today we’re talking about how technology and AI are changing real estate investing. And this isn’t a matter of now you can go do everything on your own because you can just plug it all into chat and get the answers. A very big misconception about AI is that it tells you what you want to hear.

[01:02] Kyle Paxton: It can, depending on how you craft your prompts. This is a great topic, Faith. I think I’m a little fatigued by AI conversations at this point. I feel like every conversation is AI involved, but we have to be addressing this right now, especially in the real estate space. It’s everywhere. It’s super important. And if you’re not utilizing this correctly, you’re behind.

[01:37] Faith: It can definitely mislead you in a lot of ways.

[01:40] Faith: So the first question is, how are investors using AI to identify opportunities and evaluate deals?

[01:50] Kyle Paxton: The way I think about this really focuses in on deal screening and decision support around deals. You can apply this to pretty much any industry, my role as an accountant as well. The biggest value right now is just taking massive volumes of listings, public records, demographic data, rent comps, all of that, distilling information from a wide variety of sources and narrowing it down into a digestible summary.

[02:35] Kyle Paxton: You have to be careful with what you’re crafting and where the information is coming from. Be careful with prompting depending on what tools you’re using to make sure you’re getting real data. If we think about a real estate deal as a funnel, the first step is really throwing out the blanket layer. Where do I want to invest? What markets have improving fundamentals? Are there any off-market opportunities within those markets? Just look for anomalies across big levels of data and then bring that funnel down into the narrower, deeper part of the transaction. We’re talking about the underwriting process, sensitivity testing, lease review, due diligence. What it comes back to for me is just taking mass amounts of data and distilling them down into something that makes sense quickly. It’s really speeding up timelines in the decision-making process.

[03:51] Faith: Can AI improve forecasting and market analysis?

[03:55] Kyle Paxton: I sure think so and I’ve seen it do so. But I want to be careful here. When I’m using AI for real estate matters, my instinct is to just rely on what gets produced. And of course we can’t do that. We have to double check all the data. So what I want to be careful of is that it does improve forecasting and market analysis but certainly doesn’t eliminate uncertainty and it doesn’t eliminate the investor’s industry knowledge and the years of stress testing deals that the investor is bringing to the table.

[04:47] Kyle Paxton: It does improve the market analysis because you’re able to connect so many data points together quickly. You’re not really looking for one perfect forecast. You are able to run so much more robust forecasting with several different stress tests built in to really vet your deal. Instead of having to create your Excel spreadsheets and everything else manually around those calculations, you’re able to speed up a lot of that process and put the deal through a lot more scenarios in a compressed timeline than you would before AI. That’s a big area where I’m seeing this come to play in the real estate space.

[05:45] Faith: What role is technology playing in tax planning and compliance?

[05:50] Kyle Paxton: There’s some overlap here. As a tax preparer I get data from every source under the sun. JPEG images, the back of a napkin, PDFs, Excel spreadsheets, everything. You have a stack of 100 different documents whether virtually or on paper that you’re distilling into a tax return. On the compliance side, the benefit is just taking that data and cleaning it, getting it in a way that really makes sense.

[06:30] Kyle Paxton: When we’re talking about tax compliance, there’s highly sensitive information involved. The security around AI is extremely important and something we take very seriously as tax preparers. It’s helping through the entire process of document collection through to the end product.

[06:56] Kyle Paxton: The biggest thing is that it does make tax research a lot more accessible. I get emails weekly with a ChatGPT copy and paste export that’s clearly wrong. But I really appreciate my clients that are doing that because it’s an extra step in actually understanding their tax return. I get heartburn when I deliver a tax return and five minutes later I have the e-file form back. I want you to actually do your due diligence in understanding whether that tax return makes sense with the inputs we put into it.

[07:52] Kyle Paxton: I tell my clients that are really doing this, the ones that send me the ChatGPT summaries, I say I appreciate you doing this because there’s an effort to understand. I have value in actually keeping up with the tax law, but this is ultimately your tax return, your financial picture, your money. I want you to understand it.

[08:09] Faith: People don’t understand the lack of security when you upload things. It’s now in the cloud, it’s in the universe.

[08:20] Kyle Paxton: My friend chat knows everything about me these days. Not that all the big corporations don’t anyway, but it’s another vulnerability. We have to take that super seriously, especially as people are uploading documents from everywhere into AI without necessarily the proper care in doing that.

[08:50] Kyle Paxton: On tax planning, it’s being able to get data right now and distill data in real time down into a digestible manner so that you can make good projections along the way. You’re not just sitting on your hands waiting until April 15th to figure out what that tax liability is. Using AI to run different scenarios on what happens when we do X, Y and Z, being able to create different tax forecasts is making a material difference in how we tax plan, the efficiency of tax planning and the frequency with which we can do it because we have good data along the way. I’ve definitely seen that come to light over the last year or two in a big way.

[09:42] Faith: What are the risks associated with relying too heavily on AI-generated insights?

[09:50] Kyle Paxton: There’s a lot here. The first thing that comes to mind is garbage in, garbage out. The inputs you’re putting in, how you’re prompting, everything else are really going to dictate the outcome. That’s taking a lot of training and practice. As we’re using these tools at James Moore, as I’m using them personally and in the real estate space, it’s taking a lot of refinement to really understand how to give whatever AI tool you’re using enough information to get the output you need without putting too many guardrails in to limit its capabilities.

[10:52] Kyle Paxton: Assuming you have the right infrastructure, the biggest hurdles you have to overcome are things like false precision. A lot of times the output is pretty matter-of-fact, missing nuance and the caveats and the what-ifs, especially in research and tax law around real estate. Everyone has probably seen the news articles on hallucinations and fabricated support. I’ve seen stories of legal cases being completely made up by an AI tool because it’s trying to satisfy the user and find something that fits that doesn’t exist.

[11:50] Kyle Paxton: There are also biases and blind spots that can exist when you’re using a text generation tool. And then the confidentiality and data security I think is the most important and biggest risk here. Something that needs to be taken very seriously.

[12:14] Faith: How can smaller investors compete using the same technology as large firms?

[12:20] Kyle Paxton: I love this question. One of the first terms in real estate is leverage, right? When you acquire a property you’re taking on debt to create leverage. Leverage is everywhere in real estate. The same applies to AI. If I’m a sole real estate investor or a small family office, what I’m seeing AI do here is create leverage. It is freeing up my time to do what I’m good at and eliminating the noise. You can create a pretty robust back office with a couple of AI tools. Having professionals to vet big ideas off of is still very important.

[13:41] Kyle Paxton: You can get 90% of the way there using the major AI tools that are out there currently. It’s really allowing real estate investors to free up their time and take care of a lot of the noisier processes in the investing process. Drafting offering memorandums, summarizing market reports, comparing rent comps, the underwriting process, investor updates. If you have investors and you report to them quarterly, you can create a system where you just plug in your inputs every quarter and get the same investor report in a couple of seconds. A lot of that time-consuming work is significantly streamlined.

[14:39] Faith: Our last question today is what technologies are having the biggest impact on real estate today?

[14:50] Kyle Paxton: I’ll start with a semi-joke. If you’re buying your personal residence, you can go through and create a whole palette of paint colors and figure out how you’re going to renovate each room while you’re under contract. I’ve seen several people run around with that recently and I get a kick out of it.

[15:13] Kyle Paxton: On a broad level for real estate investing, the low-hanging fruit is generally AI and machine learning. I talked about ChatGPT — you can use that for underwriting, the valuation process, forecasting, investor reporting, all of that. The interplay of dashboard reporting and AI is big in terms of accessibility and real-time data. Being able to create a system where you have automatic inputs into a digestible dashboard where you can see real-time market updates, track supply, review comps, understand economic trends in different areas. There’s a lot there.

[16:10] Kyle Paxton: There are a lot of tools to automate property management and eliminate a lot of the back and forth with tenants, maintenance tracking, automating rent collection, utility functions. In the sales portion you see virtual tours and AI helping you visualize the space. And something that’s come into play more is how AI has helped open the door for blockchain investing in real estate, opening who can invest in real estate and creating more avenues around that.

[17:18] Faith: I feel like sometimes people can get so overwhelmed. Where do you even start?

[17:30] Kyle Paxton: If you are hesitant or this is overwhelming, AI is only going to get bigger. Learning and starting at the very beginning is the right move. You can have a consultation and get guidance through the beginning steps of incorporating these tools. Sometimes people get scared and don’t know where to go and think it’s already too far along to catch up. That’s not the case.

[18:05] Kyle Paxton: The shiny object that’s available today that’s going to solve all of your real estate problems, tomorrow there’s a better one. Understanding how we’re doing these deals, how we’re buying AI products and how we’re feeding that into our big picture is important. Don’t just go for the next shiny object because tomorrow there’s going to be a shinier one.

[18:30] Faith: Because this topic is so big and ever growing and ever changing, this is going to be a two-part series. Next week we will do another part on AI and the real estate market. It was great talking to you today Kyle.

[18:45] Kyle Paxton: Always a pleasure. Yeah.

Watch the Full Episode

This is part one of a two-part conversation on AI and real estate investing. Watch the full episode above and subscribe to the JMCO YouTube channel so you don’t miss part two.

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