Don’t Fake It til You Make It. Please.

Fake It Money in EarYa know… 

I really applaud the efforts of newbies getting started, but I can always tell when someone has just come out of some big-name guru’s seminar. About once a week I get an email that reads something like this:

“I am a real estate investor who works with cash buyers to find properties for them to buy, fix up and re-sell quickly or buy, fix up and rent out. I am looking for cash buyers interested to purchase single family houses above $300K onwards to be included in my preferred cash buyers list. I am also looking for an investor friendly agent who can identify good opportunities and make offers for us. We pay all cash and can close in 30 days.”

Yes, that’s an actual letter.

And ya know…

I do tell people to say they can pay all cash and close quickly. If they can. But here is a guy who is looking for cash buyers who then tells me he is a cash buyer. Anyone else have trouble following that logic?

However…

Let’s disregard that little piece of fiction and get on to the real issue.

Do you really think I am going to hand over my hard-found cash buyers list to you? REALLY? I wholesale properties. Finding cash buyers in my area is part of my job and it takes work. Why the H-E-Double Hockey Sticks would I send my clients to a competitor? Especially one who is going to waste their time with crap deals? Because face it, when you are new, you really don’t know what a good deal is. And more importantly, you don’t know what a good deal is for an individual buyer.

While it’s very nice to have a list of people who pay cash for properties, it is even more important to have a relationship with that buyer. You need to know what kind of properties they like to buy, where they like to buy them, how much rehab is involved, what price ranges they work in, and so on.

Taking the example sent from the freshly sprung seminar graduate above, my response to him was this:

“We teach our people NOT to buy properties but to acquire CONTROL of properties. We don’t use real estate agents when we acquire properties. We try very hard not to offer cash for deals. We work locally. We do not work in properties over $300k because our demographics show that the majority of people in our area cannot afford properties in that price range.”

Well, you know I lost that poor guy as he tried to discern the difference between buying and controlling properties.

When you blindly send out letters to investors to offer your services, you might want to ask about their needs and preferences rather than try to make yourself look like a player. We know you’re new. And there’s nothing wrong with being new. Don’t try to be something you’re not. You will be found out. (And if you heard your mother’s voice in your head when you read that last bit, thank her.)

Work locally. Go to city-data.com to find out what people in your area earn. Find out the median prices of home sales. Check out this article to find out what price range you should be working in:  http://westfloridareia.com/finding-your-pricing-sweet-spot/

Meet other investors in your area. Go to your local real estate investors meetings (find them online at meetup.com, Creonline.com and NationalREIA.com). Listen to what’s being pitched and what prices are being bandied about. Learn your local market. Unless you live in a very remote area, there will be enough business in your home county to support your efforts.

It’s okay to be new in the business. We were all new at one point. Just don’t pretend to know more than you do. Because believe me, as many years as some of us have in the business, we are still making mistakes and we are still learning. That’s part of the fun.

 

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One Property Submitted by Two or More Bird Dogs

I was reviewing properties submitted by a new bird dog last night. Several came straight from Craigslist, Zillow and/or Trulia. Is this good? Is it bad? The answer, of course, is that eye-roll causing “It depends.”

It depends on what you want your bird dogs to bring you. If you’re not specific upfront (and many times, even if you are) you’re going to receive a lot of property submissions that don’t fit your criteria.

Most investors tell bird dogs they don’t want any properties that are listed with a Realtor® or in the MLS. The same may go for Craigslist and other on-line classified ads. An investor could outsource scouring the online ad sites to a virtual assistant in a third-world county or even use a scraper program fairly cheaply. Or they could look through the ads themselves.

On the other hand, they may not mind those types of submissions from their property locators. If you are going to accept online classified ad leads, I recommend choosing one of your bird dogs to do this and tell the others you don’t want those leads.  Why? It cuts down on multiple submissions of the same property.

Face it, most FSBO home sellers know enough to list their properties online. So you could receive the same property from a bird dog going through Craigslist and one out in the field, driving for dollars. In that scenario, it’s a case of first come, first served. The bird dog who submits the property first is the one who gets the credit.

If you’re using several bird dogs and receiving a great deal of overlaps on submissions, you could assign territories. Unless you live in a very small, isolated place, there should be room for more than one bird dog. And, if you live in a small area, you probably only need one or two bird dogs.

The fact is that most bird dogs are not full timers. They are casual house-hunters. The guy who works for a moving company may call you once or twice a month with a lead. The UPS gal who delivers to your favorite farm area may or may not remember to call you when she sees a FSBO sign go up on her route. Every so often you get a bird dog who is a go-getter and they submit properties to you in batches. These are your people but please know they will only be with you for a short while. They will quickly move up to wholesaling and then possibly move on to other aspects of real estate investing. That’s okay. They become a strong connection in your investor network.

The average investor does fewer than five deals a year. A wholesaler may do 5-20 (or more) deals per month. The volume of your business may determine how many bird dogs you use or if you use any at all.  If you’re not doing a large number of deals (and even if you are) you may want to join up with other investors to share bird-dog leads. Most investors have preferred territories and niches – what doesn’t fit into your parameters may very well fit in with theirs. Bird dogs don’t really care who pays their fee. So the more of their deals that close, the more likely they are to keep submitting properties. And that works all the way around.

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Keep It Legal

Worker AntA friend of mine was at a local REIA meeting a couple of weeks ago and the speaker talked about how he used “Ants” meaning bird dogs to find properties for him. I guess he liked the word “ants” because he wanted to feel superior to the “worker drones” who were willing to go out and find him deals that would make him rich. (RICHER THAN HIS WILDEST DREAMS!)  So… you know that I am already pissed off.

To add insult to stupidity, he had his “ant” in the room while he talked about using ants to find deals. He introduced him, as a matter of fact. He discussed his payment arrangement with the bird dog.

How to get paid as a bird dog is one of those questions that always comes up because in some states, an unlicensed person cannot accept a fee for locating properties. In fact, in Florida, where this meeting was being held and where this man invested in properties, bird dog fees are illegal.  Last time I checked (and it could have changed), it was legal to offer and pay a bird dog fee in Florida; it was illegal for someone to actually ACCEPT payment.  You gotta love the way they write laws down here.

Now in the grand scheme of illegal activities, accepting a $500 or $1,000 fee for finding a property would not make one the next Al Capone. Or Goldman Sachs for that matter.

However, sitting in that meeting room were more than a few real estate agents.

I don’t know how things are in your neck of the woods, but most of the agents who are still in business (down more than 30% and probably closer to 50% since the bust) are fighting for every scrap they can get. And they sure as hell don’t like it when some bird dog is getting fees for locating properties. I can guarantee what will happen next because I have seen it happen before:  one or more of the real estate agents will turn the investor and the bird dog in for selling real estate without a license or whatever the actual offense is. The bird dog (probably not the investor) is going to get hounded and will have to pay a very hefty fine that will in no way be commensurate with the pittance the investor was paying him.

Stupid! Stupid! Stupid!

There are legal ways around this. You can pay your bird dog (or get paid) as a marketer or lead generator.  The bird dog can take an equity interest in the deal and either keep a piece of the action or assign their contract which at that point makes them a wholesaler.

The most important thing is to find out what the laws are in your state and then DON’T BREAK THEM. And if you are stupid enough to break them, don’t stand up in a public forum (and this includes social media sites, thank you) and talk about your illegal activities.

We say it over and over again in our manuals and seminars. There is NO SENSE in doing a deal illegally. If you are found out, you will lose the deal and probably more. Our esteemed politicians cannot pass a law without dozens of loopholes meant to benefit them and their friends. Learn the laws. Learn the loopholes. Consult knowledgeable and competent attorneys. And keep it legal out there.

 

Find the Deal or the Investor First?

Both. You knew I was going to say that, didn’t you?     Investor or Deal?

But I do lean more to finding investors who are looking for deals first. True, if you come up with a great deal, you can most probably find an investor who will take the deal. However, it is much easier to get to know investors in your area and find out what they are looking for before spinning your wheels looking for a deal — any deal.

This is a buyers’ market and there are deals everywhere. Investors don’t need you to bring anything that is on the MLS or is an REO property. They can find those themselves. But they may be looking for certain types of properties that may be a bit harder to find. Some investors want free and clear properties so they can try to get owner financing. Some might want rentals that have “tired landlords.” Others might want properties that are behind in payments but haven’t hit the foreclosure/courthouse listings yet.

Go to local real estate meetings in your area (to find a local meeting, go to nationalreia ).  Get to know some of the players in your market. Find out what neighborhoods investors like and what they avoid. Get their cards or at least a name and number. Be friendly. Be yourself. You will meet some good people and some not so great people.  But the key to getting started is to meet investors. So don’t be shy.

 

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On Doing Big Deals

When you are starting out in real estate, it’s very easy to get sucked into the fantasy of doing one big deal and making enough money to replace a year’s income.  It’s also incredibly frustrating to hear other investors or (online gurus) talk about the “killing” they have just made on a deal. While you’re congratulating them, you’re thinking to yourself, “What am I doing wrong? Why am I not finding deals like that?”

Anyone who has been in the real estate investing game for any length of time will tell you that the “home runs” are few and far between. An investment portfolio is made up of solid singles, a few doubles or triples and the occasional home run. In short, you can’t hit a home run every time you’re at the plate.

But it is sooooo tempting to swing for the fences. Back in 2002 or so, I had a real estate investor friend who was ALWAYS working on multi-million dollar deals. She was a lovely lady who would bird dog properties and put buyers and sellers together. The problem was she was always getting squeezed out of the deal. In short, she was screwed over time and time again. Why?

First of all, she wasn’t securing her own interest by putting a contract in place before shopping the deal to her buyers. But more importantly, she was a small fish swimming with sharks. The people she was dealing with were smarter, faster and richer than she was. And less honorable to boot. Face it, there are many people who say  “Business is business” and have no problem cutting someone out of a deal.  She was always talking about this big deal and that big deal, but I never saw one close and I never saw her get paid on one of these big deals. In fact, the only deal I ever saw her make money on was a property that I bird dogged with her and another friend. A small deal with a $10,000 assignment fee.

When you are in a business deal of any sort with people who have deeper pockets than you do, you need to be very careful. People with money can “wait you out.” They don’t have to do the deal right away. They can and do hire lawyers to legally cut you out of deals. To continue the baseball analogy, you are trying to play in the big leagues without the skills or equipment you need to win.

Jay Turner says you don’t want to be the canoe caught between an aircraft carrier and the pier. That is the position you put yourself in when you are bringing together two or more big players in a multi-million dollar deal. You will not only get crushed, but the parties won’t even have noticed that you got crushed.

Work on bread and butter deals. Those are the three bedroom, two bath homes in good neighborhoods that are bought and sold on a daily basis. Give yourself time to grow and learn as an investor. You will make more and steadier money doing average deals on a regular basis. Big deals take more time and money to close. If you are only hunting the big deals, you may very well go broke before one actually pays out. Build up your skills and your war chest. You will come across some big deals as you go about your business. By then you may have established working relationships with “bigger players” who won’t screw you over or who can advise you how to go about executing the deal.

 

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Problem Property? Just Say No

I saw an investor offer up a deal that looked something like this:

  • Property has Chinese dry wall
  • Pool is sinking into lake
  • Anyone interested?

 

Now, in a seller’s market, when there aren’t a whole lot of deals to be had, this might be something worth looking at.  If you’re a complete masochist.

Here’s the deal:

Chinese Drywall: All the drywall has to be ripped out.  You will probably need to replace the electric and plumbing because the sulfur in the drywall corrodes them. You will need to replace the a/c system.  You will basically have a hazmat situation which will involve government permitting and inspections.  The house is a tear-down.

Pool sinking into lake: At best,the  pool will have to be ripped out because it wasn’t constructed correctly.  Or the investor may be able to fill it in.  However, more likely, because the property is on a lake, there are probably settlement issues going on.  If the pool is settling into the lake, how long before the house starts settling, too?

These are two VERY EXPENSIVE and time-consuming problems to mitigate.

Bird dogs, I’ll put it to you:  Why would your investors want to buy a problem property when there are so many properties that are going for cheap that don’t have those problems?  Only a new or stupid investor would take on problems when he doesn’t have to.

Your investors are in real estate to make money, not to give themselves headaches.  If a property has too many problems or one very expensive problem, then move on to the next deal.  There are literally millions of distressed homes and homeowners out there.  Yes, some people like to take an ugly house and turn it into a pretty house.  But true investors would rather pick up a pretty house that needs little to no work for the same price as that ugly problem house.  You are earning your fee to find a good deal, not a problem property.

It’s a buyers’ market.  There are tons of great properties out there for the picking.  Go for it.

 

You Need Room for Profit

Profits in Real EstateJay is working on some more tips of the week for people on our list and he asked me, “What are the five things you look for in a deal?” I won’t tell you all of them (hate to steal ALL of Jay’s thunder) but the one that jumped immediately to mind was “There has to be enough room in the deal for me to make my profit.”

Sounds pretty basic, doesn’t it? That came directly out of a conversation I had just had with a sister investor. (Hey, can’t leave all the deals to you guys!)

My friend was trying to work a deal with a woman who had received her house as part of her divorce settlement from her doctor husband. It’s a nice house in a gated community. Today’s value would put it between $210k – $220k all fixed up.  It has a $40k HELOC on it, money the lady took out to live on after the alimony and child support stopped. She has no job and is not able to work a job. She is embarrassed to go apply for disability. She very wisely took in a boarder to cover her HELOC payments, HOA and electric with a little bit to spare.

She knows she needs to sell the house. It needs about $15,000 in repairs and updates (fluff and buff) but she doesn’t have $15,000.  She can’t afford to stay. She can’t afford to go.

Here’s the problem: She wants full retail for her house.

In order for my friend to make a profit, she needs to get that house at $160,000 at the most.  When you are putting that much of your cash at risk, you want wide margins.

While we can all see the train wreck coming, the seller seems to be oblivious to the disaster that will visit her in the near future.

This is where most investors in a buyers’ market such as this would walk away, yelling “NEXT” at the top of their lungs.  I might be one of those people. But you don’t walk away from a possible deal without leaving a hook in.

Real estate is a people business. People’s circumstances change, sometimes in a day. The bank could call the HELOC, even though her payments are current. Her boarder could decide to move. The woman could face up to reality one day soon when an unexpected bill comes through her mail slot.

There is a deal in that house. It just hasn’t jelled yet. Leave the door open. Check back from time to time.  But don’t get stuck on that one deal, either.  Because if a deal doesn’t have room for you to make a fair profit, it’s not a deal.

 

Do you need to be a licensed agent to bird dog?

Not necessarily, but in some areas, you should be licensed.  In most areas, you can work as a lead generator or quickly move into either a wholesaling position or an equity position so you are not violating any laws.  Times are tight and real estate agents are hurting.  They do NOT like bird dogs encroaching on their territory so you want to make sure you keep your nose clean and do it right.  Check with a local attorney to make sure you don’t violate any laws.

I bird dogged a lot of properties for investors in my area and I still do a bit of bird dogging.  Sometimes I find a property, sometimes I find a buyer.  I know people who are successful investors who have a little sideline business bird dogging and wholesaling houses.  Why?  Not  every property they see is right for them, but they may know someone that it is right for.

Bird dogging is a stepping stone into real estate investing.  It makes a great part time business or a side line business.  Most importantly, it’s fast and easy to get up and running as a bird dog.  If you’d like to learn more about birddogging, check out my book here.

 

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HOW MUCH DO BIRD-DOGS MAKE?

Fees paid vary from $500 to $5,000 depending on the investor or the cost of the deal.   Expect your fees to be in the low range when you are starting out.  As you become better able to identify “good” deals for your investors, your fees can go up.  Remember, if an investor isn’t making money on a deal, he can’t pay you or more likely, he won’t buy it in the first place.  And here’s another bird dog income stream to consider: Some businesses will also pay you a standard fee if you bring new investors into their business.

 

Through real estate deals you can make money in real estate, and generate extra income and create multiple streams of income.

You can actually make a living as a bird-dog but it isn’t the way to fast wealth or even slow wealth.  Bird dogging is a way to break into the investing business.   And bird dogging fees are a great extra income that you can put aside so you have funds to invest when you are ready to pull the trigger on your own real estate deal!

 

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HOW DO YOU BECOME A BIRD-DOG?


Your first step would be to find a company or investor who advertises on signs or in the newspaper that they buy houses, or take over
payments.

Tell them what you’d like to do and ask them which areas they’d prefer you to look at. Drive around the area and look for ‘For Sale by Owner’ signs, rental homes and boarded up homes.

You will develop a sense of what individual investors are looking for over time. This is the learning phase. You will pick up what experienced investors consider ‘good’ or ‘bad’ deals based on working with them.

Expect your finds to be turned down at first as you learn. But as you get more experience and  a better idea of what your investors are looking for, you’ll start matching the right properties to the right investors.

 

To Learn more, check out my ebook:  Secrets of a Bird Dog

 

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