Among the most valued and most rewarding things a person can do to build income and equity is to learn ferret out properties that hold the potential for profit. These may be fixer uppers, or pre-foreclosures, or Short Sale properties, or foreclosed inventory (REO) held by lenders. To the extent that you can come up with potentially profitable deals, you can earn very high rewards.
Let me approach this from the standpoint of the entrepreneur who is trying to make money. My style was to go door to door in promising neighborhoods and try to list or Option houses that I could eventually buy. More often than not, I found deals that didn’t meet my self-imposed criteria. Rather than reject them out of hand, I went to the owner with a “contract subject to my being able to find an ultimate buyer”. My next task was to find someone who would pay me a finder’s fee.
After a time I found a Syndicator who rounded up houses that he shared with investors in a Limited Partnership. His problem was to find houses that the money he was collecting could buy. In addition to buying the houses, he also had to manage them to produce income. He was a much better manager than buyer, so welcomed me with open arms . . . and cash. He paid me $3000 for every house deal that I turned over to him. Over a three-year period he bought 120 houses from me that I didn’t want for myself. That boils down to $360,000. In effect I was being paid to look for houses for myself by selling the houses I didn’t want.
Today, where it isn’t prohibited by law, I pay $1000 to those who find houses for me. My bird dogs include small loan officers, maintenance men and contractors, insurance agents, and brokers. Don’t overlook mailmen. They patrol neighborhoods 6 days a week.
Convert Bird Dogging Into Income Plus Equity
It’s just a hop skip and jump to being able to make significantly more money finding an active investor who’ll pay you a fee for really good deals. You could do this for no fee at all. Instead of getting a fee and moving on to another property, if you stick with him until he has made a profit prior to taking anything out of the deal for yourself, you can earn a very good living by taking a share of his profit.
I am such an investor. I willingly put up all needed funds, and have given up Options that captured half of all net income and profit, to one person who has found over 200 houses for me over the past 10 years. In almost all cases, these houses were sold into the retail market, not held for long-term investment. Without any cash investment at all, he has shared half of the profits the houses made.
For the most part, the foregoing houses needed only cosmetic repairs, but recently I have also found a formula for dealing with those who can fix up houses and rent them. My arrangement with one such person is to buy a house at a very low price that he fixes it up as a rental; then to give him all of the rents until the house is sold at some point in the future. The first house he bought is rented for $1000. He keeps all the net cash flow for his own use. This gives him a real incentive to get the maximum rent from the best tenants.
He can sell the house for cash any time that he can find a buyer, but out of his 50% share of the sale profits, he must pay one half of the rents he has used for himself in addition. In effect, I’m making him an interest-free loan of half the net rent during the ownership period. If he gets just 10 of these houses, he’ll have a gross rental income of $120,000 per year in addition to half of all the appreciation in the property. Clearly he has a real incentive to only buy bargains.