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Should you pursue the so-called ‘bird-dog’ approach to real estate investment?

Posted by John Reed on

A number of bad gurus are pushing bird dogging as a real estate investment strategy. Should you do that?


May be illegal

For one thing, it may be illegal. When I was a real estate agent in New Jersey, paying a finder’s fee, which is another name for bird dogging, to anyone other than a licensed real estate broker was illegal. I expect some other states have similar laws.

Virtually all states prohibit the unlicensed practice of real estate brokerage which is generally defined as getting paid to bring a buyer and seller together.

There is also the federal Real Estate Settlement Procedures Act which prohibits things like undisclosed paid steering of buyers and kickbacks.

So your first expense with regard to going into the bird dog business is to meet with a knowledgeable local lawyer to ask if this is legal in your state and situation.

Violate confidence

Typically, those who make regular money as bird dogs are betraying a confidence. Typically, they have some job that enables them to get advanced, insider sort of notice of a pending sale of a property at a bargain price. Those who abuse their position to earn bird dog or finder’s fees betray the trust and confidence of the property owner and/or their employer.

As such, they could be fired. If they have some sort of professional license, they might have their license suspended or revoked.

IRS employee indicted for bird dogging

My local daily paper, the San Ramon Valley Times, on 7/25/09 told of the indictment of Mark Claybrooks. He is an IRS employee who worked on delinquent taxpayers. He urged persons who were delinquent on their federal income taxes to refinance their homes with Faith Morgage Group of Antioch, CA. Faith paid him $20,000 in finder’s fees.

Claybrooks was charged with three felony counts of “acts affecting a personal financial interest” and two counts of misdemeanor fraud for using IRS computers to obtain personal taxpayer information without authorization. For the felonies, he could get up to five years in prison and a $250,000 fine. For the misdemeanors, he could get up to one year in prison and a $100,000 fine.

Just looking for property

Suppose you have no such job. You are just going to bird dog by wandering around looking for good deals. Look at it from the perspective of the guy who is supposed to pay you the finder’s fees.

If I am a real estate investor, my main strength is being able to find deals. In other words, successful real estate investors are their own bird dogs. I would not be interested in relying on some beginner layman to find deals for me. I would assume that I would be faster doing it myself and I have to be fast to beat out the other investors with whom I am competing for the best deals.

In theory, if the bird dog had information I could not get access to, like a bankruptcy attorney’s secretary, I could benefit from her advice. But that would probably be unethical and illegal so I would not be interested in such information and the secretary should not be providing that to anyone else either.

Also, I typically have one or two specific strategies when I invest. What are the chances some bogus guru is going to train you in those particular strategies? And what are the chances it will be adequate training by my standards?

There are about 80 sound strategies, each has different ways of finding properties to buy and different criteria for what the property situation must be. Learning how to bird dog for all those strategies would be like getting a PhD. If you knew that much about real estate you would be doing your own deals not working for nickels and dimes for someone else.

Why are bad gurus pushing bird dogging?

Bad gurus prey on ignorant poor people. Poor people are, by necessity, big on ways of getting rich that require no money and no risk. Bird dogging seems to an ignorant layman to provide a no-money down way to get rich in real estate.

The sale of bird dog training is a form of trade school scam. From time to time, your local TV or newspapers will do a story about a local trade school that charges a lot of money to teach you how to ply some trade like truck driver. The scandal is that few, if any, of the school’s graduates ever get good paying jobs as truck drivers or whatever they were supposedly trained for.

Nickels and dimes

Finders fees when legal are typically in the neighborhood of $100 to $1,000. Why not just get a real estate license and do the same thing for a lot more money and without worrying about getting caught?

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