“Should I get my real estate license?”
I am often asked this question at “Millionaire Real Estate Investor Workshop/Meetup” or during private consultations. I, myself, started as a real estate investor (flipper). As new or wanna-be real estate investors, it’s a very important decision that should be given a lot of thought.
Let’s take a look at some of the reasons you might want to get a Real Estate License.
4 Reasons Real Estate Investors Should Get A Real Estate License
1. Get Access to the MLS
Sometimes it seems like you don’t really need a Realtor to search for homes because you can search for homes on-line. But only a licensed realtor who is a member of the local MLS can search all the homes on the MLS. This is why real estate investors always should work with local realtors. Having your license and belonging to the local MLS will allow you access without having to rely on other agents. As a real estate agent, not only can you look for properties on the MLS, you can review comparable properties near the subject property.
2. Save Commissions
Many new or wanna-be real estate investors I meet are inspired by reality TV shows. In these shows, flippers make a lot of profit out of one deal. But what they don’t show is there is more costs than just the remodeling cost. You will have Quiet costs. Quiet costs consist of Buying costs (Escrow Fees, Inspection Fees, etc), Holding Cost (Utilities, Insurance, Property Tax etc), Cost of Money (if you use financing), and Selling cost (Escrow Fees, Title Insurance, Home Warranty, Termite Clearance, Commissions, etc). So their profit is actually quite lower than what they show on TV. As a licensed real estate agent, you can save commissions and make it more profitable. Also, you can earn commissions when you purchase.
3. Referral Fees
Even if you decide not to deal with buyers and sellers other than yourself, you can refer them to licensed real estate agents and earn referral fee. You may refer your family, friends and other investors to any real estate agent or brokerage throughout the world. If you can build relationships with other investors all over world, this could be a great income source. Just make sure agents are reliable and belong to reputable real estate brokerage so that you receive the referral fees smoothly.
4. Profit Share and Growth Share (Keller Williams Realty only)
If you are actively buying and selling homes, you will get to know a lot of agents. And you might be able recruit them to join Keller Williams. Keller Williams Realty rewards you for bringing in other productive agents. If an agent lists you as their sponsor, the person most influential in the decision to join Keller Williams, then that person is officially in your downline. If you recruit agents into your downline, you are entitled a share of the profits of the office that result from your downline. Keller Williams Profit Share/Growth Share is also up 21 percent YTD and up 254 percent since 2011. Cumulative profit share is now at $780 million.
Depending on your real estate investment model and strategy, there are some Cons to having your license.
4 Reasons Real Estate Investors Should NOT Get A Real Estate License
1. Maintaining a real estate license involves time and money.
With relatively low start-up costs and no hard ceilings, a real estate career seems perfectly tailored for any ambitious entrepreneur. But there are some costs to maintain a real estate license. Memberships to local real estate agent boards, and also state boards, NAR Membership, MLS, all of those require fees. You will be required to work under a broker, every state requires ongoing Continuing Education to renew license, a commitment that will take up more of your time and money. (Note: you can write off your office expenses, membership fees, etc)
2. No Extra expertise
Not relying on other agents means that you do not have the benefit of agents with extra expertise. Finding deals and getting deals with right price are completely different animal. You have to do everything from running the comps to getting deals done.
Once you have a license, you’re put on a pedestal and you are held to a higher standard. You’ll need to disclose to your buyers/sellers that you are a licensed agent. You can’t “knowingly take advantage” of a buyer/seller; etc. Your liability is increased substantially.
4. Buying a property from a seller directly out side of MLS, aka Pocket listings
Many real estate investors, especially flippers, deal with the seller directly. They call, knock on doors, put signs saying “We buy houses fast, any condition” to purchase deals as the lowest price possible. But once you become a licensed agent, this strategy may cause legal issues, including: breach of fiduciary duty to the seller, violation of MLS rules, possible violation of the Code of Ethics, possible violation of fair housing regulations. Of course, the seller can sign the disclosure and agree to opt-out of MLS. But I do have to remind you that you are in California, law suites and threatening to sue you happens too often even though you follow the rules, regulations and Code of Ethics. So we do recommend putting all listings on MLS. (Also read article about Pocket Listings).
Before you decide on getting a real estate license, I would suggest that you think through these pros and cons. As for me, I started out as flipper and ended up with becoming a full-time real estate agent. After several flipping properties, I realized that for me becoming a successful full-time real estate agent (and buying investment properties to hold) is better and less risky than becoming a successful full-time real estate flipper.