262: Should Real Estate Investors Get a Real Estate License?

SHOW NOTES FOR EPISODE 262: SHOULD REAL ESTATE INVESTORS GET A REAL ESTATE LICENSE?

Many real estate investors wonder whether they need a real estate license in order to be a more effective, strategic and successful real estate investor.  In this podcast episode, Bill explores this question and examines the pros and cons of being an investor with or without a real estate license.

Introduction

One of the big questions many newbie real estate investors consider early on is whether or not he or she should get a real estate license.  There are real estate investors who have licenses but don’t really use them.  There are real estate investors who have licenses and are active agents and brokers.  And there are real estate investors who have never had a license and never intend to get one.  And in each category, there are just as many whom are very successful at what they do.

But the question is, “Is it BETTER for me as a real estate investor to have one?”

The Pros:

• You’ll Make More Money – There are some agents in your general area that are bringing in $1M or more per year. In some cases, you may actually want to be the listing or buyers agent. What’s 3% of a $1,000,000 listing? $30,000. Or, if you do the whole thing yourself, that’s 6% or $60K, That’s a pretty good flip profit, isn’t it? And that is the beauty of commission income, it’s a wholesaling-type transaction. You don’t need your own cash or credit to get paid a commission. So one could argue that agents were the originators of no money down real estate!  And what about when one of your friends wants to buy a home? You may want to get paid 3% for helping a friend find their dream home.  If you are doing short sales, due to some recent, significant changes, it is much more difficult for creative real estate investors to make huge profits in short sales. Although there is still opportunities out there, the vast majority of short sale approvals nowadays do not create enough room to do a back to back flip and still create any profits. The only real money left on the table in the vast majority of short sale deals are the commissions.
• You’ll get excellent training and education on state & local real estate laws and regulations that will benefit you as an investor
• You’ll have access to the MLS (only in the state you are licensed) – find properties faster. The MLS is the only true way to fully analyze value and competition of a property. When you don’t know exactly what a property is worth or what it will sell for, if is very difficult to be able to make a wise investing decision.
• You can also list your own properties when you have full MLS access. More than 90% of real estate transactions in this country are sold through the MLS so when trying to sell a property, it is very powerful way to get it moved.
• Controlling Your Own Deals.Being your own agent for your purchases and sales allows you full control over your deals. You can submit offers to and negotiate directly with listing agents. You deal directly with the lenders, the appraisers, the inspectors, the closing attorneys, and all other parties involved in the closing of your transactions, both on the buy and sell side. You control our marketing, our sales, and the showing of our properties to prospective buyers.
• You can see homes faster. Don’t need to wait for the agent to let you into a property
• You can generate commission income to help you buy more investment properties
• You can generate commissions from sales on properties you buy and sell
• You can save money on the purchase price because you don’t have to pay another agent’s commission
• When you find off-market properties, you can both buy and/or list the property
• If you know how to work it, you can make more on a deal than a non-agent investor

The Cons:

• It’s not necessary. Being an investor does not require any special license
• It’s an extra thing you have to do that will take more time, energy and effort away from your real estate investing efforts
• It’s Expensive – Getting your license is a HUGE expense of time and money. When it’s all said and done, the cost can be several thousand dollars (fees, Realtor dues, E&O insurance, more fees). You have to pay a lot each year to have MLS access. The ongoing costs to remain a licensed agent are significant and you are required to attend continuing education courses.
• Time consuming – The time commitment is going to be at least 150 hours, perhaps more. I recently spoke with a beginner investor that has been chipping away as best he can at his pre-licensing exam preparation course for over 6 months and it will probably take him another 6 months to complete it, pass the test and then get his license hung with a Broker.  If you’re only investing part-time, it can significantly take away from your investing time
• The Education – The course you take to pass the exam to get your license will teach you almost nothing about making money in real estate. The average real estate agent in this country makes below the poverty level in income and rents their home. They weren’t taught to make money when they got their license, they were taught how to answer the questions on the exam. What’s a leasehold estate? Who exercises eminent domain? What is functional obsolescence? Who cares! Memorizing the definitions of terms will not help you put any money in your pocket in the real world of real estate investing.
• MLS Access – As powerful and helpful as MLS access is, it alone should not be the reason to get your license. There are several ways to get access to the MLS without having to spend the huge amount of time and money to get your license. This is perhaps better suited for another blog post, but briefly, here are some ways to do it. You can get access through a friendly agent. In some MLS systems, you can go to an all day class and become a non-licensed assistant of a Broker. Many of my mentees have done this. If you have a close friend or family member, they may even give you the taboo (and perhaps against MLS policy) username and password to log into their MLS account. In some areas across the country, much of the most important MLS data is available to the general public due to some anti-trust lawsuits that the Realtor association lost and therefore had to open up their MLS monopoly.
• It adds more steps to the buy and sell process
• Agent Disclosure – You must always disclose to sellers that you are an agent and that might hinder your opportunity for the sale, seller financing opportunities or other creative financing. You also must have them sign a disclosure that states you may be buying the home below market value and making a profit on the home. But if you’re buying the house as an investor, you’re acting as a principal, not an agent, so you don’t need to disclose.  Direct mail and marketing are more difficult because you have to disclose on the marketing material, even if you’re acting as a principal. In court, there is no way to prove that you were acting as a principal and not an agent.
• Slows you down.  If you buy a property you have to follow specific disclosure requirements that may slow down the buy process
• No out-of-state commissions. You invest out-of-state you cannot get commissions if you buy out-of-state properties
• Marketing disclosure.  If you are marketing to find off-market properties, your letters, postcards and all marketing materials must disclose you are an agent, which could discourage prospects from responding to your direct marketing efforts
• Loyalty to Your Broker – As an agent you must be part of an existing brokerage, so you must find a firm who will let you hang your certificate on their wall, you may have to share commissions and your responsibilities there may limit the amount of time you have for your own personal investing
• Real estate agents may have a conflict of interest – If you sell many homes as an agent, you may be competing with your own clients when you buy investment properties. This could be a conflict of interest if you want to buy the same home one of your clients wants to buy.
• Open Houses – As an agent/broker, you may have to host Open Houses on properties you list ths killing your weekends, evenings and other personal time

There may be other pros or cons but at least that gives you an overview.

On my podcast, I have interviewed many successful real estate investors, some of which are agents In today’s show notes, I will have links to some of those podcasts

Mark Ferguson is a successful real estate investor and educator who has his brokers license and sees it as a benefit.

Here is the podcast with Mark Ferguson: 087: Creating Wealth with Single Family Homes

Brain Murray was a teacher with no previous real estate experience who jumped right into real estate investing and is very successful.

Here is the podcast with Brian Murray: 107: My First Real Estate Investment Was an Office Building

Deciding to become an agent is a personal choice, and I hope this list of pros and cons will help you make yours.

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