Why Amateur Investors Get ARV Wrong When Flipping Houses

Jason Kogok (00:00)
Getting the ARV right for something six months from now.

⁓ and that shouldn’t come as a surprise. ⁓ if you’ve been doing this long enough, ⁓ and, you kind of know, Hey, forecasting what this thing’s going to sell for in six months is, is tricky. ⁓ especially in markets like today. I think that goes to outside of the macro economic things that we’ve talked about that are going to be national. think you need to understand your local hypermarket, ⁓ inventory levels. and not, know, I get a ton of people that’ll say, well, what’s your average days on market?

Scott Bursey (02:07)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. And today we are bringing the heat with a guest who is not just succeeding in real estate, but is actually teaching the next generation of pros how to win. We are talking about the master of the flip and flip strategy, Jason Kogok. Jason’s coming to us from Investor’s Wealth Education and as an adjunct teacher at North Carolina State University.

He’s bringing the fuel today that specialized knowledge that cuts through the noise. Get ready to pour some high octane knowledge into your investment strategy. Jason, welcome to the show.

Jason Kogok (02:48)
Thanks for having me. I’m excited to be here and go through questions and share and just kind of chit chat.

Scott Bursey (02:54)
⁓ It is going to be a pleasure, sincere pleasure. And Jason, for our listeners that aren’t familiar with your journey, could you please tell us how your career began and what your main focus is now?

Jason Kogok (03:07)
Yeah, yeah, no problem. I started, I’m in the Raleigh, North Carolina area. I started investing and doing real estate brokerage in 2002. So still operate a real estate sales brokerage team, small team, and we’ve done.

you know, 25 years. And as I was doing that, I was investing in properties along the way. So some was just, you’re buying hold long-term rentals, which we still have. And then we started getting into fix and flips and that type of thing. And I’ve been doing that really ever since. And then about 12 years ago, I kind of got an itch for teaching a little bit.

And as if I didn’t have enough going on, was like, well, let me, let me see what I can do with this. And, you know, started a course over at our local community college, which happens to be the largest one in our state Wake Tech. And what started as kind of a passion project turned into, wow, this is, I really enjoy this. ⁓ And I found a lot of fulfillment out of sharing my knowledge, both good and bad, right, experiences ⁓ with, with students and doing it in a way that I

was in a good platform. You people go to your local community colleges to kind of learn that and get that continuing education. ⁓ And so I did that for, you know, almost 12 years, just, you know, once a week at night.

⁓ And then through a series of events, ⁓ I got linked up with NC State. They were starting an unbelievable Masters of Real Estate Development program there. And they asked for me to come on board and be an adjunct lecturer and teach their graduate level ⁓ commercial finance and economics. So I teach a couple of classes over there, still operating my residential brokerage business and still operating ⁓ my… ⁓

investment business

so yeah wear a couple different hats.

Scott Bursey (05:52)
That’s

incredible, Jason. It sounds like you’ve built a rock-solid foundation based on both practical deals and academic theory. Let’s dive right into what our listeners want to know from you. What is the biggest leverage point, Jason, you see right now in the flip and flip market?

Jason Kogok (06:02)
for sure. Great.

I think networking is huge. As somebody that’s been doing this for 20 plus years, I’ve been privileged enough to see a lot of different markets. so depending on what market you’ve been in or entered the market, you have a tendency to think that that is the market forever. And so when I started at the beginning or the tail end of the tech bubble, and then we went through a couple of good years there. then the 08 came and kind of rocked.

us off for a while and so after doing certain markets for a while you start to think that that path to inventory or that path to success is the new path and really what I’ve learned over doing this for so long is the common denominator is the people you surround yourself with and so if you’re networking and you’re with other investors I never view them as competition. I may sometimes be envious of something they’re doing right I may be like wow I wish I was doing that dealer that’s amazing.

⁓ but I look at it as a partnership. ⁓ And so I think networking is probably the biggest thing because your network will carry you through any market condition. There’s going to be somebody in your network that is going to help you either when the times are really good or the times are really bad. And so I think that is my biggest leverage point. I think it took me till longer in my career to realize that that was my biggest leverage point.

used to think my biggest leverage point arrogantly was my knowledge and my experience. And I came to realize that no, that’s no good if you have nobody else around you when you need them. So I think that’s been huge.

Scott Bursey (07:57)
Absolutely I agree identifying that specialized micro market advantage whether it’s off-market sourcing or managing labor costs is what separates the casual flipper from the true pro.

Jason Kogok (08:10)
for sure.

Scott Bursey (08:12)
And Jason, I know that our listeners are going to want to hear this from you. What is the most common mistake you see investors make when underwriting costs?

Jason Kogok (08:24)
Yeah, I think underwriting cost is can be tricky, especially in a market like today. You know, we’ve all heard the stories of the six and seven dollar two by fours during COVID and those type of things, right? ⁓ I think, you know, but those came on really quickly and they were kind of right in your face right away. And so everybody was dealing with the same thing. think right now the biggest underwriting issue is forecasting those expenses moving forward. So if I analyze a deal today, but we’re not starting construction

for 30, 60, 90 days or whatever it may be, I have to be able to analyze and forecast what those expenses are going to be. And we have seen just recently with geopolitical stuff, ⁓ wow, it’s becoming really difficult to know what that future expense is going to be. And that’s more of a material thing, but we’re seeing it also in the labor market, as we’ve had various immigration policies, and that’s a non-political statement, that’s just

so a black and white, right? It’s just less in the workforce. ⁓ You know, what was I think maybe going to help labor expenses, you know, hasn’t done so. And we have a little bit of a scarcity of labor in some particular fields. And so I think that’s one of the biggest underwriting issues that somebody with less experience battles is, ⁓ man, I looked at today’s pricing, 60 days from now, you know, it’s almost anybody’s guess.

And I think that’s probably one of the biggest pitfalls.

Scott Bursey (09:54)
spot on, you

have to build that backup buffer.

Jason Kogok (10:36)
For sure, and it has to be realistic. I mean, a lot of investors, ⁓ they create contingency plans, but when I sometimes I’ll look at the deals that are underwriting and I’m like, the contingency is just too small.

Right? The contingency isn’t actually there for variations in labor and materials costs. They have put it there from a, uh-oh, what didn’t I know? Like we opened up a wall and there was extra rot. And so their entire contingency goes to those variables, but goes to no sort of variation in what we actually know we need to do and those pricing that change. And you compound those.

and a contingency budget gets blown right out of the water. And the flip side to that is if you’re too conservative, no deal will level pencil either. So, you know, it’s a fine line and that’s why this business has risk.

Scott Bursey (11:32)
Absolutely. Interested to know Jason, considering your role in education, where does Investors Wealth Education see the biggest untapped opportunity for tech integration in property management or flipping?

Jason Kogok (11:47)
Yeah, think twofold. think one is AI. I think that’s kind of the easy answer, and I think it’s the right answer. think AI is obviously making an impact. I think there’s a lot of noise and a lot of programs out there, and so I’m not sure, especially in the real estate field.

what AI ultimately does. think ⁓ most of us right now are using AI as an admin, you know, and helping us do some of those kind of day-to-day operations. I think it will expand further. ⁓

think there’ll be a lot more material management, ordering management, logistic management. think a lot of those things will occur. ⁓ I think also though, that has also got a downfall to AI. I know a lot of people that using AI to kind of run comps and do ARVs and do some of these things. And am using it as if it’s gospel. And they don’t have a pulse on the market because they’ve been led to believe that AI is the smartest thing in the room.

⁓ And so I think pros and cons there with how AI plays out is going to be really important. I also think there is an integration there and I’m not sure the connection yet, but between social media and AI and how are we either advertising our own business to get more inventory and more projects or how are we promoting these to get sold faster? ⁓

And I think there’s some people that are doing some creative things there, but I don’t know if that model has really been sorted out. But I think that’s the biggest technology on both sides.

Scott Bursey (13:27)
If I’m hearing you correctly, Jason, AI must be a balance. Education is the ultimate force multiplier.

Jason Kogok (13:36)
Yeah, for sure. mean, what worries me about the AI isn’t the productivity, it’s the reliance. ⁓ And I think, you know, as somebody that’s older, ⁓ you know, we’re hesitant for new technology a lot of times, right? I use AI, but I probably don’t, I use it a fraction of what I could do. But that’s because I’ve got that kind of…

old man, I don’t want to learn something new, right? But I get to see these students, know, when I teach at NC State, I see these students and AI, are relying on it instead of truly understanding the knowledge behind it. And that reliance I think is concerning, ⁓ especially in that generation, because you’re not learning the industry, you’re learning stats or theory.

but you’re not diving in and getting your bumps and your bruises and your licks like the rest of us have and still do. So yeah.

Scott Bursey (14:36)
Well

summed up, thank you for that ⁓ interesting perspective, Jason. And Jason, we must know what single regulatory or economic threat keeps you most vigilant in the current housing cycle for short-term flipping?

Jason Kogok (14:39)
Yeah.

Yeah, for short-term flipping, think honestly there’s a couple things. like I mentioned to you previously when we were chatting, I’m kind of an economics nerd here.

so I sometimes look at this from a really macro perspective. And I think there’s a couple things that ⁓ are out there that don’t have to be bad, but need to have some uncertainty removed out of them. One is the bond market. I watch our five-year and our 10-year treasury quite a bit. That is really, for me, that’s way more important than the

stock market. So I think ⁓ seeing how those rates kind of settle out is a direct correlation to the flipping industry. And the reason is, is because without buyers, we can’t flip.

And so, you we don’t have buyers, we can’t flip. So as a short-term flipper or ⁓ any type of real estate investors, I know a lot of investors who don’t really pay attention to that because they’re like, well, it doesn’t affect me today. And it may not affect the price of the two by four today or the price of the painter per square foot or et cetera. But if you don’t have a buyer, you don’t have a business. ⁓ And that buyer is directly impacted.

by the bond market. So I think the bond market is one economic thing that I am closely paying attention to. And the other is unemployment. ⁓ Unemployment is one of those, we have a tendency to look at unemployment by stats. What is the unemployment rate, et cetera, et cetera. There is a, in my opinion, a big gap in unemployment that isn’t talked about and it’s fear. It’s just the fear that I may lose my job. And so I don’t show up in a stat

If I have my job, I’m not counted as not having a job, right? So I’m a strength to the economy. But if I’m afraid that I’m going to lose my job or my spouse is afraid, how I operate my disposable income, if I want to buy real estate, what kind of interest rate can I swing? All of those things now become factors. And yet I didn’t show up in any sort of stat. So those are the two things that I think are really important.

Scott Bursey (17:39)
I think you nailed it right in the head that interest rate pressure is real, forcing buyers to pull back. Jason, it demands that we focus on deep value plays and not rely on, you know, easy refinancing or appreciation to bail out our poor purchase.

Jason Kogok (17:58)
Yeah. And I also think it people, at least what we’ve done in the past couple of years is we’ve started looking at what’s plan B and plan C. you know, and, and we’ve changed our strategy, you know, we’ve, we’ve gone from, you know, only doing maybe flips to we’ve kind of dived into some short-term rentals and, we do some long-term rentals and, kind of almost, ⁓ stockpiling inventory for future flips, you know,

And I think there’s a strategy there to let some of the uncertainty reduce itself, but still operate a business.

Scott Bursey (18:36)
Well taken. Jason, what scale gap poses the greatest threat to scaling a flip and flip operation past 10 deals a year, in your view?

Jason Kogok (18:47)
So outside of the ability to network, which is important, I think the ability to forecast, I think it goes back to education to be honest with you. think being able to forecast, because what ends up happening, or at least what I see is, is if you can’t forecast and you’re not financially setting yourself up for…

whatever could come. And so then the carrying cost starts to really just eat away at deals. Even if you hit your budget, what we’re seeing now isn’t necessarily budget concerns, we’re seeing carrying cost concerns. And then that directly goes into cashflow concerns. And as soon as you have cashflow concerns, you have two options. You either leverage even more, which that’s fine if that’s your path, ⁓ or you have to start doing price cuts. You need to start unloading inventory.

Right? And then you’ve gone from flipping houses for success to flipping houses to survive. And so I think that’s probably one of the biggest things that I would say ⁓ is important as far as a skill, is forecasting.

Scott Bursey (19:54)
And it all boils down to education if I heard you correctly.

Jason Kogok (20:00)
Yeah, it does. mean, and it’s, you know, it’s, it’s, it’s hard because economics is usually not like this exciting topic, right? ⁓ we may talk about the headlines behind economics. may talk about interest rates. We may talk about the price of oil. We may talk about, you know, unemployment rates, but not many people are excited about getting into the nuts and bolts of those long boring reports. ⁓ and so, yeah, I think education is, is critically important. I just wish it was a more exciting.

educational topic.

Scott Bursey (20:32)
That was a high level breakdown, Jason. Appreciate you sharing your insight. Now, let’s get to the money question, the one that everyone tunes in for. Jason, considering your expertise in flip and flip and teaching real estate finance, what is the one pro secret about underwriting a deal that you find is absolutely essential for maximum profit, but the amateur investors consistently overlook?

Jason Kogok (20:37)
Yeah.

the ARV right for something six months from now.

⁓ and that shouldn’t come as a surprise. ⁓ if you’ve been doing this long enough, ⁓ and, you kind of know, Hey, forecasting what this thing’s going to sell for in six months is, is tricky. ⁓ especially in markets like today. I think that goes to outside of the macro economic things that we’ve talked about that are going to be national. think you need to understand your local hypermarket, ⁓ inventory levels. and not, know, I get a ton of people that’ll say, well, what’s your average days?

on

The average days on market is useless because I might have one that’s got one day and one that’s got 200. If I use the average, I haven’t done anything. And so I think it’s more than just those surface level kind of stats that a lot of people will spout off.

I think you have to have your ear to the ground. think you need to talk to people and say, you know, okay, let’s put all the stats to the side. Tell me what you feel is occurring, right? And you know, even if you can’t prove it. ⁓ And I do that with…

in my sales brokerage and in the investment side and listening to builders, listening to developers, listening to friends that say, hey, I’m thinking about buying a house next year. And I say, well, why are you waiting till next year? And they say, well, this, this, and this, and their feelings. And so all of those feelings need to come into my ARV irrelevant of what the past 10 sales have said, because those homes are no longer on the market.

And so I’m in a different market. I’m in the market of what’s for sale today And so I think that’s really important. The other thing I think is also important ⁓ is Understanding the motivation of the other sellers out there That’s my competition and I have to have a really good feel for are these people Selling because they want to sell they need to sell they’re scared Because that is going to directly correlate to how they operate their price and their price drops

thus impacts my property. So I think that’s really an important thing and it’s overlooked. It comes with experience, of course, but it also can come with effort. You don’t have to be doing this 20 years, a little bit of effort.

Scott Bursey (23:19)
That’s the deep dive right there going underneath the surface. Couldn’t agree anymore. Spot on Jason. And Jason, this has been pure gold. Before we sign off, if our listeners want to follow your journey or perhaps collaborate with you, what’s the best way for them to reach you?

Jason Kogok (23:31)
Yeah, I’ve had fun.

⁓ Get me on LinkedIn, just my name, Jason K-O-G-O-K. That’s probably the easiest. Or you can email me at [email protected].

Scott Bursey (23:49)
Thank you so much for joining us today, Jason.

Jason Kogok (23:51)
Yeah. Thanks for having me.

Scott Bursey (23:53)
It was a sincere pleasure. And for our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We have exceptional guests, just like Jason coming up down the road. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.