When you’re running a real estate investment business, you’re constantly on the lookout for ways to find motivated seller leads. There are dozens of possible methods you can use, and the one I’d like to explore in detail today is using bird-dogs. There are some real estate investors who swear by them and others who think it’s a waste of time. I’ll go over all the real pros and cons of bird-dogs, and then you can make your own informed decision as to whether or not you want to add this strategy to your motivated seller leads toolbox.
For those of you wondering what in the world a bird-dog is, here’s a detailed definition from investopedia.com:
A real estate investing term that refers to someone who spends their time trying to locate properties with substantial investment potential. Usually, the intent is to find properties that are distressed and selling at a discount that can be repaired or remodeled and sold for a sizable profit. Sometimes, however, the term is also used to refer to people who find underpriced properties that would make good income (rental) properties. The term itself is a reference to hunting dogs that would point to the location of birds and then retrieve them once the hunter had shot them.
As a real estate investor, the point of working with one or more bird-dogs is to have more sets of eyes and feet out on the streets or online, looking for distressed properties and motivated sellers. If they’re good at what they do and bring you leads that convert to deals, then everyone wins.
The Downside of Bird-dogs
There are several ways that bird-dogs might not work out very well. Some real estate investors make the mistake of paying bird-dogs up front to track down motivated seller leads, only to find out that these leads the bird-dogs are turning in are just MLS listings that anyone with half a brain could find. In other words, a major potential con of bird-dogs is when they don’t bring you anything of value. If you pay them up front and don’t get any value out of it, you can feel like you’ve been suckered.
Speaking of payments, what should you be paying a bird-dog? You can pay a flat fee or a percentage of the net profit from the deal. A percentage system allows you to vary what you pay them based on how much work they actually do, say anywhere from 5% to 20%. If they are just giving you names and phone numbers, you would pay them at the lower end of the percentage range. If they’re going the extra mile with lots of information on the property, how much is owed, what company holds the mortgage, and so on, then you would bump them up to a higher percentage. A bird-dog who goes even further and puts houses under contract has gone beyond what can be considered bird-dogging and is solidly in the realm of wholesaling.
I should also mention that paying bird-dog fees to people without a real estate license based on closing a deal they referred to you is illegal in many states. But the laws also often allow for payments to unlicensed finders if it just a flat fee for simple leads. The problem is when bird-dogs get overly involved in deals and wind up acting like real estate brokers. Licensed real estate agents put in the time, effort, and expense to get and maintain their licenses, so it doesn’t seem fair to them that an unlicensed bird-dog should get paid for doing anything akin to what a licensed real estate agent does. Obviously, there is a ton of bird-dogging happening out there, much of which might technically be illegal, and although I’ve rarely if ever heard of anyone actually getting into trouble over it, consider yourself properly forewarned to know the laws in your state!
The Upside of Bird-Dogs
The main upside of using bird-dogs is having more people working on finding motivated seller leads, which is how your real estate investing business grows and thrives. This is one area in which the old adage many hands make light work definitely applies. And if you’re careful to never pay until a lead converts to a real deal that closes, then bird-dogging could very well become one of your go-to strategies.
To avoid potential legal problems, don’t even use the term bird-dog, and be clear about what they’re doing – conducting research for you. The more research they provide, the more they get paid. They might just drive around and take photos of potential properties, supplying you with photos and addresses. Or another level would be researching properties at the appropriate municipal offices, looking into assessment records and county deed records to supply you with more information about the property and who owns it. An even higher level of research would be probate records in the local superior court. There is all sorts of vital informational research that an unlicensed bird-dog can legitimately conduct on your behalf.
What you’d want to avoid is having bird-dogs actually make any contact with the property owner. If a bird-dog starts talking to an owner about how they might know of an interested buyer, then the bird-dog is potentially crossing the line into what many states define as real estate brokering, which requires a license. If you ride the edge of legality with bird-dogging, you also run the risk incurring the wrath of local realtors, which can make your life both difficult and unpleasant.
Where do I come down on bird-dogging? I’m all for it as long as you’re smart about how you do it. I want a whole army of people out there identifying motivated seller leads for my real estate investing business – and I want them to go about doing it in ways that don’t grossly violate any laws. Will bird-dogging make it into your lead-generator toolbox?