Where should investors hang their real estate license? Or to put it differently, which broker should you associate your real estate license with? When you first get real estate licensed, typically you're more of a real estate agent or associate. You haven't reached the level of broker yet. This means you must associate or hang your license with a broker to begin practicing real estate.
Hang Your License With a 100% Commission Real Estate Broker
With a 100% Commission Real Estate Broker you get to keep 100% of the commission and instead pay a monthly fee. The monthly fee is how the broker makes money, pays overhead and follows all the necessary regulations.
How to Find 100% Commission Brokers
The easiest way to find these brokers is by doing a simple statewide online search. You don't need to hand your license with a broker that's in your own town. The brokerage just needs to be affiliated with your area and MLS region.
For example, the brokerage I'm a part of covers the Orlando, Tampa and Daytona areas, all the way down to Miami and South Florida. They are able cover a large area because you can do all your business with them by email. To find out your MLS region you can do an online search or call any local real estate agent and ask them.
4 Reasons Why to Hang Your License with a 100% Broker
1. It Saves You Money
Sometimes you don't pay the monthly fee and instead charge a per transaction fee. These can range from $300 to $600. With the broker that I'm associated with, I just need to pay my MLS dues and then per transaction. MLS dues vary as well and can be $50 to $100 a month. The cost per transaction will vary from area to area. For example, in California where you have a higher sales price, it is going to be more than in a place like Ohio or Kansas.
2. It Saves You Time
With a 100% broker, you don't have all the requirements of traditional brokerage. You don't have to do desk duty and they don’t require you to go to weekly or monthly sales meetings with the broker. It’s possible you may never even show up in the office. In fact, I haven't physically been in the office in years! I email and mail all the paperwork that's necessary on each file, which is very efficient.
3. It Gives You Flexibility
Not only is it a benefit that you get to keep the full commission, but it also gives you considerable flexibility. Most real estate brokerages are not 100%. They vary from 50/50 to 70/30. In this kind of arrangement, you can’t alter how much goes toward commission and how much your profit is as a real estate investor. The broker wants their cut, so in a way you have a partner in every deal.
I love the flexibility of the 100% commission structure from a tax perspective. It gives me flexibility to incentivize a seller or a buyer and do it legally. You may not want to get the 1099, but rather all that go to your LLC because the updated tax rules make it better to pass through entities. When your partnered with other brokers, they may not want you to reduce your commission to zero for tax purposes.
4. They Support Real Estate Investing
There's one more reason why it makes so much sense for a real estate investor to associate with this kind of broker. It's because they are going to be supportive. Let's look at their business model.
The 100% broker is making money per transaction, so they obviously want you to do more transactions. Also, most of these brokers affiliate legally with both a closing company and a mortgage company, making their money from the referral fees from both companies.
Whereas both the brand name and off-brand name brokers, make their money from the 30% or even 50% commission. They're going to make more money if you do traditional real estate agency work. They don't want you investing, because investing is not making them money. They don't want to invest time and energy into training you to be a traditional real estate agent if you're going to go out and become independently wealthy, creating wealth through real estate investing.
They may say they support it, but their economic model is built for you to continue being their living. Which also means that their training is going to be geared toward this, even in the way that they teach you how to do lead generation. Making you do more grunt work lead gen so that they can pull the low hanging fruit lead generation techniques for themselves. In contrast, the 100% broker economic structure was set up for you to be supported. They want you to go out and do your own thing, because all the money's not coming from you being a traditional real estate agent.
2 Drawbacks of Hanging Your License with 100% Brokers
1. They Don’t Provide Any Training
Some people argue that a drawback with 100% brokers is they don't teach you anything. This is true because they assume you already know what you're doing. You're going to them as a professional real estate practitioner and you just need the benefits. Do real estate investors need broker training?
I would argue that the training is a mirage. I think from a distance it looks good, but once you get closer, you discover as a real estate investor that it's not necessary. I'm referring to “training” as teaching you how to make more money as a traditional real estate agent. There are two ways you make money as a real estate agent; listings and representing buyers.
I don't want to make this too simplified, but in a way it is. How difficult is it to sell a property? You list the property on the MLS, making sure all the listing information is correct and it gets sold. Now, if you price it wrong, the pictures are bad, you put the wrong information in, it can be difficult to sell. However, this is how me and my apprentices have sold thousands of deals over the last decade. We just list them on the MLS correctly and we list them with a flat fee agent. We don't even get a listing agent involved to tell us what to do. We do it ourselves, and it works incredibly well. So, just flip that around. How much more difficult can it be to represent someone else's property to sell? It's not.
Representing a buyer is about understanding what the buyer wants, being a good listener and asking a lot of questions. You may have to show them several houses for them to figure out what they, but once you know what they want, you show it to them.
Now, if you don't ask the right questions, or if you show them the wrong houses, then it's difficult. There are some details within the negotiations, but as a real estate investor, you're going to know the ins and outs of these contracts and the negotiation techniques. In fact, I would argue that as it relates to helping friends and family, as a real estate investor, you are the best person for them to work with. You have experience as a buyer and a seller and can put yourself in their shoes.
Sometimes there's the fear that you somehow aren't going to get the training with a 100% broker and my argument is, how much training is necessary?
Ultimately, if selling a house is not that difficult, and finding the right house for the buyer is not that difficult, what's the difficult part about being a real estate agent? It's leads. If you don't have any listing leads or buyer leads, you starve.
However, as a real estate investor, if you're generating enough seller leads, you're also going to generate leads that are not good for investing and these are good listing leads. Since you're already generating the leads, you don't need that fancy 50/50 broker for that either. Typically, real estate brokers are going to train you on how to generate leads using traditional techniques, which are not nearly as efficient as some of the techniques that you do as an investor.
2. They Don’t Have a Brand Name
Often people will say that 50/50 brokers have the benefit of a big brand name and that's true. But I have discovered time and again that when it comes to this business, both buyers and sellers of real estate are not nearly as enamored by brand names as we might think. They want someone who answers the phone quickly, who is knowledgeable and can get what they want.
As an investor, you're already generating the leads, connecting with them and building rapport. Yes, the fancy sign gives a slight credibility benefit, however, it's not worth 40% or 50% of the commission.
To learn when it makes sense to have a license, watch my video called Should Real Estate Investors Get a Real Estate License.