Understanding Bird Dogs In Real Estate: What They Are And How To Become One
Melissa Brock6-minute read
October 11, 2021
You might compare a bird dog in real estate to a headhunter, or someone who finds people to fill the right positions at companies. You might even compare bird-dogging to its namesake, the hunting dog, which flushes out birds so the hunter can catch them.
To get a better understanding of bird-dogging real estate, let’s look at its advantages and disadvantages and how to bird dog your first real estate property.
What Is A Bird Dog In Real Estate?
So, what is a bird dog in real estate?
In real estate, a bird dog is an individual who searches for underpriced and often distressed properties on behalf of real estate investors. A bird dog is paid in return when their lead results in a successful purchase.
Many people interested in bird-dogging are new to real estate investing and do not own investment properties of their own.
How Does Bird-Dogging A House Work?
A bird dog, or a property scout, works online, in a car or on foot to look for investment properties for real estate investors. They may search for homes for experienced real estate investors to flip or for those who seek housing units, for example. Bird dogs generally seek distressed properties, foreclosures and other "deals." Investors and bird dogs alike often seek these properties out because of the opportunity to buy a home at a discount.
If an investor decides to buy the property and the sale goes through, the bird dog gets a commission.
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Is There A Difference Between Bird Dogs And Wholesalers?
Yes, there is a difference between bird dogs in real estate and wholesale investing.
A wholesaler acts as the intermediary between a home’s seller and an end buyer. The wholesaler contracts with the seller for the exclusive right to buy the property for a set amount. They then attempt to reassign the contract to an end buyer for a higher price, which is where they make their profit.
The wholesaler becomes the property owner with the right to transfer the contract, but the seller retains the home’s title. When the wholesaler reassigns the contract, the end buyer completes the real estate transaction directly with the seller.
On the other hand, a bird dog doesn't keep the property for themselves – they turn around and pass on their finds to an investor, collecting a finder's fee for their efforts in the end.
The Advantages And Disadvantages Of Becoming A Bird Dog
Let's go over the advantages and disadvantages of becoming a bird dog so you can decide whether this practice makes sense for you.
Here are some advantages of making money by bird-dogging.
Bird dogging is low-risk and low-commitment. Bird-dogging is low risk because it is a type of real estate investment that does not require the bird dog to purchase property. In addition, it presents a low commitment because once they pass a property off to their investors, they don't have any more responsibility to that particular property.
Bird dogs can work part-time or full-time. Bird dogs can enjoy a flexible schedule, either committing to a full-time gig or just putting in a few hours a week.
Bird dogs gain exposure to the real estate industry. Even though you don't actually purchase property yourself, a bird dog can learn a lot about real estate, particularly when learning how to locate properties that have potential. Newcomers to real estate can find that becoming a bird dog is a great way to learn about real estate on the job.
Bird dogs can find the practice profitable. It's possible to earn a good income as a bird dog, particularly because bird dogs don't put any of their own cash on the line.
Now, onto some disadvantages of becoming a bird dog.
Most bird dogs won’t bring home a consistent salary. Bird dog fees often range from $500 – $1,000 upon closing, but the work isn't always steady. Bird dogs can't always count on the right properties to be always available, nor that investors will like the properties they choose. In general, commission-based work comes with financial risks because it's not always guaranteed income.
Bird-dogging still requires some level of real estate acumen. In some cases, a bird dog needs to be in the right place at the right time to find the best real estate deals. However, bird dogs also need to know market trends and must educate themselves about the real estate industry to be successful. They may also attempt to specialize in a type of property or get to know particular neighborhoods really well to develop an ability to know what investors will perceive to be a great buy.
Bird-dogging can be risky. It's possible to get embroiled in lawsuits as a bird dog, especially if real estate investors promise you commissions and they don't pay up. In addition, you'll have to formulate a tax strategy because you can't avoid paying taxes on the money you make.
How To Bird Dog Your First Real Estate Property
So, how do you approach becoming a bird dog for your first property? Here's how to go about it, step by step.
Build Up Your Network
Get to know everyone that you can locally. Build up a large network so as many people know about your efforts as possible. Your network may include real estate agents or REALTORS®, investors and other professionals.
Research Legal Restrictions
It's important to investigate the legal ramifications of bird-dogging. In most cases, bird-dogging is legal if the person identifying the deals doesn't facilitate the actual transaction. However, laws vary across the country. Bird dogs cannot act as agents or brokers because doing these activities requires a license. You may face legal consequences if you tiptoe over the boundaries, which could also harm your reputation in the real estate industry in your area.
Determine Your Profitability
When you're considering the possibility of becoming a bird dog, you want to consider how much money you might make per lead. A good place to start involves talking to real estate investors in your area. Ask them how much they'd be willing to pay you per lead.
You'll want to charge a finder’s fee or referral fee that nets a profit and takes your expenses into account. You may want to talk to other bird dogs in your area to see how much they charge and how profitable they are – though this may depend on their years of experience.
Find Your Leads
You can source potential leads in many different ways, including accessing the Multiple Listing Service (MLS), the internet, signs around town, through foreclosure auctions and trustee sales, real estate events and asking around in the community. Think like motivated sellers. If you were motivated to sell, who would you approach? Where would you go in your community?
Sell To An Investor
Once you find leads, it's important to analyze whether the deal has a potential profit opportunity and whether it will meet investor needs. Hopefully, the networking you did with investors prior to beginning your search can help you identify the right type of properties to go after. You'll only earn money once an investor decides to buy the property. Once they do, you can then charge them a commission or finder's fee.
Repeat the Steps
Next, constantly expand your network so you know what investors are looking for. Even more than that, you'll build rapport with investors by consistently finding "diamonds in the rough" and convincing investors of their potential.
Successful bird dogs often spend years in the real estate industry and consistently work with a small network of private investors.
The Bottom Line: Is Bird-Dogging Worth The Effort?
Does it make sense for a beginner to pick up bird-dogging? It's important to understand that you probably won't see overnight success. It takes time and effort to search for properties and build up a network of willing investors. You must build trust with the investors you work with.
While the low-risk, low-commitment and flexible job description might attract you, you still have to have significant knowledge of the real estate industry. You must also realize that you may not bring home consistent money, especially at first.
In addition, you also expose yourself to risk because real estate investors may promise you commissions and may not follow through. You'll also have to formulate a tax strategy because you will have to pay taxes on the money you make. You also want to spend some time researching your area's legal restrictions.
You’ll need to find your leads, sell to an investor and repeat these steps in order to be profitable.
Looking for other ways to make money in real estate? Learn more with Rocket Mortgage®.
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