Real Estate Bird Dogs
If you do not possess money to start your real estate investing profession with
, you can find choices for you to take that don't demand money but will require time. One method that we are going to go over is called the Bird Dog.
If you don't have money to execute the deal, you can definitely find the deal for another real estate investor and get paid at the same time. The way it works, in its simple form, is that you do the leg work to find a great real estate deal, get it under contract, and then sell that contract to a real estate investor.
Before you go on, let's give you a little formula. This formula is used to figure out how much you should offer on a house. Do not exceed the percentage of 65%. The lower you go, the better chances you have at selling your deal to another investor.
ARV x 65% - Repair Cost = Offer
$175,000 x 65% = $113,750
$113,750 - $15,000 = $98,750
So let's start going over this. Say for instance, you are looking for houses that can be rehabbed. Now, after doing some work and researching, you find a house that you can get under contract for $98,750. You did your homework on this house, and you find that the total cost to repair the house is $15,000. After making the necessary repairs, the value of the house will be $175,000. Because you either do not have the money or you do not have the experience necessary to successfully execute this deal, you will get the property under contract, and do what is called "flip the paper". You will be selling a contract, not a house.
Technically speaking, you can get a property under contract with only one dollars placed into escrow. Although this isn't always the circumstance, some home owners may want that you place more cash down for deposit like $500 or more. So what you need to do, is you make your offer to the homeowner to buy the house for $100,000, and you offer to put $300 or more into an escrow account. Make certain, and this is really important, that you set a clause inside the contract that it is subject to inspection. What this means is, that at that time of the inspection of the house, you can pull away from the contract if you're not satisfied with the results of the inspection. If you don't have this inside your contract, it implies that you will be liable to lose the cash that you just put in escrow.
So now, you've got the right to obtain this house at $98,750. You will be making your cash by selling this to another investor, however you are going to raise the price to generate your money. Let's say for example, you add $3000 for the final cost to the investor. The investor's price to buy the house is going to be $101,750, and the repairs will cost $15,000, leaving the whole amount to purchase and rehab the property at $116,750. Right after doing the calculation, dividing the acquisition price and repair cost by the ARV, you will have the after repair value percent. In this example, that percentage equals 66.7%. A number of investors will probably be using hard money lenders, and
hard money lenders typically like deals to be between 65% and 70%.
Now, there are a couple of ways that you can sell this contract to another real estate investor. You can either perform what's called a double close at the escrow office, or you can use the clause "and/or assigns" next to your name on the contract. For example, on the contract it will say "Tim and/or Assigns" will be purchasing the house. That clause means you can assign the contract to anyone. If you only had your name on the contract, you must be the one to purchase a house. In that case, you'll have to do a double close at the escrow office.
Now let us go over the way to perform a double close. Not all escrow offices are going to be able to do a double close for you. Many people in the escrow company don't even know what a double close is. Say for example, you did not use the and or/assigns clause, and you've got your real estate investor ready to purchase a property. What we do, is get the escrow firm to draw up a purchase contract for a purchase price of $101,750 (which includes your $3000 profit). So you are sitting at the desk, and you have two contracts in hand. The deal is going to have to operate in this order: The real estate investor purchases the house for $101,750, the escrow firm receives the cash, and then they will use that money to purchase the house from the original homeowner for $98,750. Which means that your real estate investor covered the home, so you subsequently pocketed $3000.
Carrying out a double close is a wonderful technique whenever you do not want the real estate investor that's purchasing the contract from you to learn the amount you're really making from the deal. Although it will not happen that frequently, some investors might be deterred and not want to purchase the contract knowing that you are making a substantial amount of money from it. For instance, in the event you found this same house for $88,750, and you're selling the contract for a return of $13,000. Despite the fact that the offer can still be good for the real estate investor, a few could be picky and not want to do a transaction with you. So in that case, doing a double close is ideal.
So that is a standard understanding of how to be a
property bird dog.
by: Ted Miller
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