"Should Real Estate Investors Get a Real Estate License?" is a question that comes up quite a bit. You're about to discover where it makes sense as well as where it doesn't make sense to get your real estate license if you are also investing in real estate. The most important fact to start with is that me, as well as most successful real estate investors in this country, are licensed real estate agents. There must be a reason why that is the case. And there is, which we will get into. But you'll also learn when to get it and when to focus just on investing. By the end, hopefully you'll be able to make an informed decision as to what to do if you are trying to make this decision right now.
PROS - Why Real Estate Investors Should Get a Real Estate License
Pro # 1 - More Money:
For active real estate investors, having your real estate license can be a "license to print money." There is a ton of profit in legally being able to collect a commission on the sale of a real property. Although the investor community at large tends to snub their nose at real estate agents, make no mistake, there are some agents in your general area that are bringing in $1M or more per year. Are you taking home that kind of yearly income from your real estate endeavors? Exactly.
Our studies have shown that less than 5% of properties for sale in the marketplace fit for a creative investor. What happens to the other 95%? Almost all will eventually go through a real estate agent. And although most investors don't have the time to also be a traditional listing agent or buyer representation agreement, you can certainly refer the lead to another agent and get a portion of their commission. You can probably negotiate 25% of their 3% commission for bringing them the customer. That referral commission can translate into some serious money overtime, especially if you are generated a significant number of seller leads.
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. 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. It may just be some of the easiest real estate money you have ever made. I have helped many friends buy their homes and they trust me more than any other agent they know because they know how many homes I have bought myself. They know that I have been in their shoes hundreds of times. So not only is it good money, but you may also be the most qualified person for the job.
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. And now that the banks are no longer approving "short sale negotiation" fees on the HUD, even if there is just a few thousand dollars of extra meat left on the bone, without a license, it can sometimes be extremely difficult to actually collect that money. Those in the short sale game that are licensed though, are cleaning up right now because right now there are more short sale deals available than ever before. But if you are in the short sale game without a license, you are leaving a ton of money on the table.
As you can see, having your license will expose you to more ways to put money in your pocket from real estate. And as crazy as this may sound, I have met plenty of investors who now do a few creative investing deals on the side and for the most part, do real estate agent commission deals. They are making great money, too.
Pro # 2 - MLS Access:
When you have your license, you can get full access to the Multiple Listing Service (MLS). Many investors have blind folds on their eyes and are using non-MLS based comparable sales research, such as free sources like Zillow's Zestimate or paid services like RealQuest. 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.
CONS - Why Real Estate Shouldn't Get a Real Estate License
The common reason why some investors avoid getting their license is that they believe it will restrict their ability to do creative deals. It's true that becoming a licensed real estate will hold you to a higher standard in your business practices. But is having that kind of accountability a bad thing? Don't you want to be the most honorable investor you can be? Further, I have been licensed for quite some time now and I cannot point to any situation where having a license precluded me from doing an investor deal. That doesn't mean it isn't possible so if you have a specific example you can point to, please comment below so that we can all benefit from your experience.
Here are some reasons not to get your license:
Con # 1 - If You Aren't Doing Much:
Getting your license is a HUGE expense of time and money. When its all said and done, the cost can be several thousand dollars (fees, Realtor dues, E&O insurance, more fees). 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. He has 5-10 hours per week to devote to real estate investing and all of it goes to this quest to get a license. The problem is that he is not making any money in real estate and letting a terrific investing time period (right now), slip away. The advice I give (which I did myself) is to go do some deals first. Make some money. Then, use some of the profits from your first few deals to invest in getting your license, if you can squeeze in the massive time commitment it demands.
Then, make sure you stay active in real estate. The ongoing costs to remain a licensed agent are significant and you are required to attend continuing education courses. You can choose some electives, which can be very helpful classes, but the mandatory continuing ed courses can be absolute drudgery.
Investors that ideally fit for being licensed are those that are full time investors. In fact, if you are a part time, successful investor, making the leap to full time will be much easier if you are licensed because it can bring in good money consistently while you are waiting for bigger deals to close.
Con # 2 - For the Education:
One of the biggest reasons some beginners use to justify why they "need" to get their license is for the education. The person I mentioned above fits into that category. Sadly, they come to find out that 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. Certainly, you will learn something new while going through the process of getting your license. The problem is, it most likely won't help you be successful. It'll just be head knowledge.
Perhaps the more destructive, underlying reason why some beginners jump at the opportunity to dive into a 150 hour pre-licensing course is because education is well within their comfort zone. They are afraid of the real world and far prefer the safe cocoon of Education-ville. If you have no interest in making any money from the education you gather in life, then have at it and enjoy learning about how English feudal law influenced the creation of modern day real estate practice. But if you want to get a return on your time and money educational investments, then avoid viewing getting your license as giving you insight on how to be successful in real estate. Instead, look at it as a right of passage to get the ability to earn a commission.
Con # 3 - For MLS Access Alone:
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.
What about the benefit of being able to list your own deals? flat fee listing is usually so cheap that it is practically the same thing.Although t
his isn't as big of a benefit considering how common flat fee listing services are these days. Even when you list your own deals, you will usually have to pay your broker something upon closing, which may be about the same as a flat fee listing service.
Should You Get a License?
In summary, getting your license as an investor will open up new opportunities to make more money in real estate. It is expensive and time consuming to acquire however, so if you are just getting started, go out and make some money investing in real estate first and then proceed to invest some of your profits into getting a license if you have the time to commit to complete it. Did this completely answer the question, "should Real Estate Investors Get a Real Estate License?"