When I was a young real estate investor (nearly two decades ago), I thought the best kind of leads were free ones. It just made sense. Well, it turns out that real estate leads with no upfront costs tend to not always be worth it. You usually get what you spend.

After learning that lesson, I discovered that I could get real estate leads that I pay at closing time—when I actually get the house. Awesome, right?

Well, as it turns out, while there are many benefits to acquiring real estate leads that you pay at closing. There are also a few drawbacks to consider. And, depending on your real estate investment goals, it may not be worth your time to take this approach.

Here, I discuss how you can get real estate leads that you pay at closing and a potentially better solution to real estate investing.

How It Works To Get Real Estate Leads You Pay at Closing

There are some free lead generation sources, like Craigslist, Zillow, asking around, pounding the pavement, etc. A sheriff’s auction is also technically a free lead. And, then there are some strict payment-based lead sources, of which Zillow Premium is one. You can also pay a real estate agent, among other options. In this, you pay for a service and receive a list of leads. The more you pay, usually, the better and (hopefully) more exclusive the lead.

Paying at closing is different, though. In this, you make a deal with a company, service, or even an individual to get leads. The terms are that when you close on a deal, they get a percentage of the sale. To clarify, you’re not giving them the profit after selling, but a percentage of what you paid for the house. Sometimes it isn’t a percentage and is just a straight commission.

When you do the math, you may come out paying more for the house—and, depending on the lead generator and your track record—this could be 15-25% more for each house. If you are adding up the cost to flip a house, that’s a huge addition to the ledger.

In essence, you do the work to close the deal, and the lead generator gets a cut. Seems fair. But the amount you’re spending for each investment adds up.

What Kind of Places Offer Pay at Close Deals?

This is actually a growing field, and getting increasingly crowded. There are several types of businesses and services that offer these leads. These can include:

• Real estate agent groups who don’t want their own people spending time on uncertain leads
• Individuals with a bunch of cold leads they are no longer chasing
• Peer-to-peer networking sites (where agents can swap leads they aren’t closing)
• Mortgage companies such as Quicken
• Premium online services such as Zillow, OpCity, and Realtor.com

This list can be divided into two very different categories. Let’s break down each one.

Old Leads From Other Sources

Leads from real estate agents or other real estate investors can have a ton of potential. They’re likely houses that either are or at least were up for sale. And if you’re good at what you do, you can probably close the deal.

But the truth is, these aren’t what I’d consider “qualified” leads. You’re approaching cold, they haven’t given you their info, and you aren’t entering as a trusted partner. That’s already starting out on the wrong foot.

Also, when you get leads from someone without paying upfront, they probably have no problem giving them to other agents. What do they have to lose? That could create the potential for competition and you could waste a lot of time with no result.

Leads From Professional Services

Let’s talk about Zillow, for example. Zillow has a bead on nearly every house there is. And if they can make money from them being sold, they’re doing great. So it behooves them to sell leads (which they do). To encourage people to take more leads, they offer pay-at-close contingency plans.

Great deal, right? Not always. For one thing, they aren’t going to give these to just anyone. They don’t want it overcrowded—for reputation reasons. So you already have to have a good track record (this can be true for other services as well).

If you don’t close, you stop getting leads. They want this to be high, fast volume. You may feel the pressure to make deals you wouldn’t normally make. And, trust me, rushing into a project usually means disaster.

So while the idea of real estate leads you pay at closing sounds good, the reality is a bit different.

A Better Way To Get Leads

The kind of leads I started getting after I invested in an independently owned and operated HomeVestors® franchise were different from the prior leads I’d received. They were quality leads: low competition and a better entry point. And that’s because instead of giving me old leads and hoping I made them a few bucks, HomeVestors® gets hot leads and gives them to investors.

As you might know, HomeVestors® has the We Buy Ugly Houses® national marketing campaign. Across the country, when people need to sell fast, they turn to HomeVestors®. As a franchisee, I can get that lead. I’m not picking over leftovers from last year. It’s a huge difference.

I pay to be a franchisee, and with that, I get great leads. There’s no gimmick. There’s no weird math—nothing but great leads.

If you’re considering investing in real estate and need a solid way to get leads, request information about becoming a franchisee today.

Each franchise office is independently owned and operated.