One of the most frequently asked questions I get is, “How do I get started investing in real estate?” Part of this confusion comes from so many options and courses offered to beginners. They range from wholesale to buying commercial properties and everything in between. So where should a new investor start?
Beginners are sometimes recruited by seasoned investors to find properties for them. These seasoned professionals advertise on road signs, in newspapers and online. Their message is simple and explains how to earn $10,000 a month or more as an apprentice with a real estate investor. Often the types of learning and specific tasks are not disclosed until the newbie takes a closer look at what the job posting is about.
The name “bird dog” comes from the fact that trained dogs are used to point various upland game birds, such as quail or pheasant in thick brush before a hunter can see or hear them. These bird dogs stop when they smell or hear a bird and freeze in a position allowing the hunter to move forward and chase the birds to get shot. Bird dogs in real estate investment flush out prospective real estate sales based on a criterion given to them by their seasoned investor.
The benefits of being an investor bird dog are that you will learn one or a few specific prospecting techniques to find motivated sellers. These usually include techniques that the investor does not want to do on their own due to the danger, inconvenience, or boring and repetitive prospecting. Common examples are door-to-door in neighborhoods that may be dangerous, hanging flyers from doorknobs, pre-qualifying owners from another lead system, making appointments with owners already found by the bird dog or driving for money in undesirable neighborhoods.
Driving for cash is simply driving street by street in a specific neighborhood, finding properties that are overgrown or look abandoned, and then following leads to find what you hope will be a motivated seller. In my experience, my deals have been found generating more money than any other single source of prospecting – in our system, that’s over 40% of our deals.
The bird dogs will be taken to take photos and possibly do some research to complete an information package to give to the investor to follow up and purchase the property. If this is completed, the investor will sell it and make a profit and the bird dog will be compensated.
Compensation can be in the form of a fixed amount for each lead, or a percentage of the profits from the trade – with profits being defined as the investor determines. In most states, a percentage of the profit is considered compensation for an unfair interest in the property. This legally means that the bird dog must be a licensed real estate agent, so check how this will be handled to avoid any regulatory issues. If the bird dog is a partner in the transaction, such as in a signed contract in effect, this should solve the commission issue, but always check with a local real estate attorney to avoid trouble.
The investor who recruits a bird dog knows that the better trained the bird dog, the less likely he is to continue working for him. Even if the investor gives a 1099 tax return without withholding for an independent contractor, the bird dog is his employee. The investor will train the bird dog at a minimum to growl the hard work and eventually the bird dog will fall by the wayside due to lack of income or go off on their own when they realize they are not earning enough for their efforts.
As an example, if the investor pays $10 per lead with photos and all searches done from public records, and he does that for 100 houses, he will earn $1,000. However, if the investor knows his stuff, he will close and make a profit of at least $10,000 on 5% of the properties. This closing rate could reach 20% if the dog-bird did its job properly. So, the bird dog wins $1,000 and the investor wins between $50,000 and $200,000 – that seems disproportionate, doesn’t it?
The most important question is what happens if the bird dog is injured on the job and needs medical benefits, who pays for his general expenses, how much does he really earn, and can he track sales if he is a partner in the transactions? I met a full time bird dog when I was at a property I had been prospecting for two years for an investor and was told that his prospects never turn into deals. It is absolutely impossible, but he continues to work for his expenses and hopes to become an investor one day.
The investor has an interest in continuing to recruit beginners and letting them go rather than turning them into true apprentices at the risk of them becoming his next competitor. The prospecting techniques that are taught to bird dogs by “master” investors are ones that anyone can learn in a day. The main problem for someone starting out in the business is selling the properties under contract and this can be as simple as finding the sellers. If you’re trying to hunt birds, be prepared for the unexpected and be careful.