Real Estate attorney -- any references? Do I need to form an LLC here?

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Real Estate attorney -- any references? Do I need to form an LLC here?

Jason K.
Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes

I've got a concern I need answered about birddogging. I am licensed.

1. As a licensed investor in Texas, what actions must I take in order to be able to pay a partner (birddog), where it is not considered paying an unlicensed individual real estate associated "commissions" or "fees". Must I set up a LLC? Limited Partnership? Please explain or PM me. I must also note that I am not acting as a realtor in this scenario, and am just wanting to reward & split my earnings with my partner/birddog.

In essence, at what point can birddogging become ethical and legal, and not get me into trouble waters?

:oops:

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
15y

First, to say that bird-dogging is illegal is a very broad statement. Depending on what the bird-dog actually does, it may or may not be legal. For example, if the bird-dog simply sees a property on the street that looks boarded up, digs into the county records to find the owner's name and then brings you the address and the owner's contact info, I don't see where any laws were broken.

As for how you could pay the bird-dog, I'm not an attorney, so take this for what it's worth. But, it seems your best two options are:

- Enter into an Independent Contractors relationship with the bird-dog and pay him a commission that is 1099'ed at the end of the year;

- Create a business entity and hire the bird-dog as an employee. This will require you to pay taxes on your payments and will have other labor law implications that you'll have to be aware of.

Again, I'm not an attorney, but those seem like the two best arrangements. That said, you may also want to check with your local real estate commission to get their input...

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    15y

    Well, Bird dogging is illegal so if you pay one then your not following the law. It dont see how setting up anything like what you suggested would make any difference. If you are going to pay a bird dog your going to have to take the risk involved. Good luck

    Curt Davis - KAIZEN Realty538 Reviews
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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    There must be a way that the birddog can assume an equitable interest in the property some how, some way. No?

    The buzz word here is that I'm "licensed". I face much more risk than the common investor.

    I find it hard to believe there is nothing I can do, to legally make it a join effort, and where I'm not paying a "fee," but sharing a profit. It's more of a partnership role, in my opinion. Not a "finder's fee" role. I'm not looking for a way around the law, that's why I want to know how I can comply.

    Anyone else?

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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    what if the birddog is a member of my LLC?

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    15y

    One option would be that you include them in the purchase of the home so that when you sell it and your profits come in you can then give them their real equitable interest in the property. Even though your not acting as a realtor you can not pay someone who is not licensed a fee for a real estate transaction. Just do what everyone else does.

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
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  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    15y

    Have them put it under contract and assign to you. Or you can double close on it. They need to have an interest in the property.

    Bird dogging is when they have no interest in the property, they find the leads but they never put it under contract, they just simply provide you the information.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y

    First, to say that bird-dogging is illegal is a very broad statement. Depending on what the bird-dog actually does, it may or may not be legal. For example, if the bird-dog simply sees a property on the street that looks boarded up, digs into the county records to find the owner's name and then brings you the address and the owner's contact info, I don't see where any laws were broken.

    As for how you could pay the bird-dog, I'm not an attorney, so take this for what it's worth. But, it seems your best two options are:

    - Enter into an Independent Contractors relationship with the bird-dog and pay him a commission that is 1099'ed at the end of the year;

    - Create a business entity and hire the bird-dog as an employee. This will require you to pay taxes on your payments and will have other labor law implications that you'll have to be aware of.

    Again, I'm not an attorney, but those seem like the two best arrangements. That said, you may also want to check with your local real estate commission to get their input...

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    1Reply
  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    Thanks for the replies...

    I don't think she is capable of putting it under contract that's the thing lol. And if she is, then she is doing my job, so why does she need me? They could make more if they found a retail buyer or rehabber.

    I understand what birddogging is -- but if they didn't have an interest in me buying the properties that they find, why would they be doing it?

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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    Is there an attorney that can put this case to rest out there? Preferably in Texas?

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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    Could I state in the purchase contract that Belinda Birddog is entitled to 20% ownership, and I get 80%. Then I can buy her out at or after closing? Would this cue a red flag after a few times?

    I may be on the right track here, but am too newb to process it all.

    :)

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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    so therefore the BD is entitled to 20% of the profit after the closing with the end buyer. Does it work that way?

    Example: Me and Birddog purchase home together that birddog found at an 80/20 ownership split. Purchase price is $100,000.

    End buyer pays $110,000 and birddog and I split the 10K of profit. I get 8K, birddog (minority owner) 2K..

    That way there are no fees involved -- no one is paying an unlicensed individual for sale of real estate -- equitable interest for both BD & myself.

    thoughts?

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by Jason K.:

    I don't think she is capable of putting it under contract that's the thing lol.

    Why not? If it's not an REO, she puts it under contract with a very small earnest money deposit, a due diligence period and authorization to assign the contract...

    Why wouldn't she be able to do that, and then assign you the contract?

    This makes it completely legal and she can get her fee at closing right off the HUD-1...

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  • Champak Shah
    Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes
    15y

    Jason is right --pretty much I was going to suggest. One sugegstion --have a LLC and instead of employee --In your Operating Agreement -- define her duties and compensation --based on number of propetrties she finds and / or amount of profit you make-- keep good relation ship and be good friends -partners for mutual benifits.
    Make sure to check with tax consultant --how to pay her --withdraw taxes etc
    I have used my Consultant / Finder Fee Agreement for a Commercial Properties--and have made $30,000 on one hotel. As long as
    it is disclosed upfront --Buyer - Seller and Closing attorney --knows --dont have a problem. I do not want to get a Realtor License.

    I understand --SFR --is diffenrent issue.

    I have read in book and on webinar --
    you can use Pizza Delivery man or Mail man
    for Birddogging to identify Vacant or borded up homes --and you pay $100 to $500 --if you buy that hosue-- just pay cash --who is going to complaint ?

    Howeevr, Is ee that you are talking about profit sharing --is that a good business strategy ? You can find cheap birdogger -- part time --students to do serach online, or buy motivated sellers leads-- may be cheaper --just a thought.

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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    Well...

    That's the thing. She won't put it under contract. We both will. (Or chances are I would, and add her name as a buyer) I wasn't referring to assigning anything, although I see where you're going.

    What I was thinking is why can't we buy the house together? Me controlling 80% ownership, she 20%. And that puts her on the title as well, correct? (At least briefly if we orchestrate a simultaneous closing)

    That way when we sell to our end buyer, she nets 20% of the profits, and I pocket the rest.

    Now, the proper verbeage on how to rig it up on the contract, or how to do it -- I have no clue.

    That's just what I came up with. I'd like to see someone put this mess into something productive :)

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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y
    0Reply
  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    -per previous post-

    Sorry, I meant to copy this and respond:

    "Howeevr, Is ee that you are talking about profit sharing --is that a good business strategy ? You can find cheap birdogger -- part time --students to do serach online, or buy motivated sellers leads-- may be cheaper --just a thought."

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  • Champak Shah
    Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes
    15y

    You buy the house in name of LLC --
    she can do all the leg work --bird dogging or cheking comps etc --you can also pay small fee and make her an assistant and have her
    access MLS for searches- comps etc --so she can do more than just bird dogging ---teach her more and be more productive -- you can define profit sharing percentage in your Operating Agreement.

    I am just completing one --for a buisness -- where by I found an Invetsor who to put up 100% financing --I have an American Partner who will operate the Business day to day activities--will get paid salary -- plus 45 % of net profit per month --but we have agreed -that I will pay him 50% of net profit when we sell our business in three years -- he is happy --becasue he found the deal -- a closed commercial property --do not want to get too much details - but can be done --Just have good attorney and accountant's advise you --for your state --

    You can also have separate LLC for each property --in case you can't sell right away and need to keep as rental - she can find tenants and manage property --

    Do you really need the License ? if you are not Top Broker --and or want to be an Investor .

    You can also talk to some high producing brokers who are also investors- during your monthly meeting --bring up subject for discussion --

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  • Champak Shah
    Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes
    15y

    Unless you are making over $150K per year --
    I would cancel the license.

    OR have an LLC --with Husband as main
    owner /president --still have to be careful--
    I assume --you are amrried.. LOL

    Yes --many times Licese does hurt.--even if you buy from Motivated Seller --you have to disclose that you are a Licensed Agent .

    You can also act as Buyer's Agent --making offers for your Husabnd ( LLC ) .

    Read previous post and have an attorney and
    or other Brokek advise you --

    0Reply
  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    15y

    If you are a licensed real estate agent, paying a birddog is illegal. If you are not licensed, but an investor acting as a principal in the deal, then paying someone a finder's fee, referral fee, marketing fee, or whatever else you want to call it on your books, is not illegal.

    Don't go to the expense of creating a business entity that you don't really need, just to pay a birddog fee.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by Dave T:
    If you are not licensed, but an investor acting as a principal in the deal, then paying someone a finder's fee, referral fee, marketing fee, or whatever else you want to call it on your books, is not illegal.

    I can't speak for other states, but in my state (Georgia), it is illegal for an unlicensed person to receive a "finder's fee" from anyone other than an unlicensed seller.

    If you are not the unlicensed seller in the transaction, the only way you can legally pay a finder's fee is if you have some other legal business relationship with the referrer -- either independent contractor or employee.

    Again, that's just my state...I can't speak for others, though I suspect this is pretty typical...

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  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    I'm certainly aware of that Dave. What I'm referring to is -- I purchase the property, but I split ownership of the property with the birddog, to avoid having to pay a fee. Like an 80/20 split, 90/10... So I would assume both our names would be on the title. After closing, I either buy the buyer out for his % of ownership, or he collects his % of ownership from the profits we make on the flip, and I collect the rest.

    How would you go about structuring this split of ownership in the contract, if even possible?

    0Reply
  • Jason K.
    OP
    Involved In Real Estate · Houston, TX · Member since 2010 · 196 posts · 2 votes
    15y

    of course I'm just referring to any property that my birddog finds for me.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y

    Jason -

    You wouldn't structure the split in the contract. On the contract, you would both be listed as buyers, which would likely require both of you to sign all the documents, both of you to go to closing, both of you to be responsible for ensuring that the contract is followed, etc.

    The equity split would likely be defined and accomplished through a partnership agreement or an operating agreement as part of a business entity you and this buyer create jointly.

    That said, this seems a little complicated just to pay a bird-dog. I would suggest just creating an independent contractor agreement and pay the bird-dog for finder services as they are clearly defined in the agreement. Then 1099 him/her at the end of the year...

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
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