At some point, every creative real estate investor wonders: Should I get a real estate license? It’s a good question. Unfortunately, this topic is rarely addressed clearly to the creative investing community.
For example, you may hear myths about how being a licensed real estate agent restricts a creative investor’s ability to do deals. In other instances, the significant time and financial costs required to get and keep a license are not mentioned.
I hope to set the record straight, so you can answer the question for yourself.
Although removing one’s bias makes for better authorship, it’s difficult to be completely impartial. Therefore, I’ll disclose upfront that I’m a licensed real estate agent and have been for many years. I love being licensed. I consider it a license to print money. So now you know my bias right upfront.
I’m not alone. Just about every extremely successful creative real estate investor I know is licensed. There are several reasons for this, which you’ll discover shortly.
The so-called investing experts who aren’t licensed and teach that creative investors shouldn’t get their real estate license, typically are not actively creatively investing. Instead, they are too busy working on their next infomercial or local hotel seminar.
The Restrictive Myth
A myth swirling around creative investing circles is that becoming licensed restricts your ability to do creative deals. Although it holds you to a higher standard in your business practices, in my experience having a license has not restricted any legitimate creative transactions.
Being held to a higher standard makes for good business. As we all know, hucksters don’t last–honorable business professionals do. But could there be instances when having a license restricted a creative deal? I’d like to know! Please comment at the bottom and share situations where a real estate license restricted a creative deal.
Here are the pros and cons of getting your real estate license.
PROs to Getting Your License
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 collecting 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.
Most investors don’t have the time to be a traditional listing agent or buyer representative, you certainly can 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 over time, especially if you are generating a significant number of seller leads.
In some cases, you may want to be the listing or buyer’s agent. What’s 3% of a $1,000,000 listing? $30,000. That’s a pretty good flip profit, isn’t it? And that’s 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 you could argue that agents were the originators of no money down real estate!
What about when one of your friends wants to buy a home? Get paid 3% for helping a friend find their dream home. It may just be some of the easiest real estate money you’ve ever made.
I’ve 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 in my lifetime. They know I have been in their shoes hundreds of times. Not only is it good money, you may be the most qualified person for the job.
Some recent, significant changes have made it much more difficult for creative real estate investors to make huge profits in short sales. Although the opportunities are still there, the vast majority of short sale approvals 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 for most of short sale deals are the commissions. Now that the banks no longer approve “short sale negotiation” fees on the HUD–even if there’s just a few thousand dollars left on the table, without a license it’s extremely difficult to collect that money.
Those who are licensed, are cleaning up right now because there are more short sale deals available than ever before. But if you’re 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 exposes you to more ways to put money in your pocket. And as crazy as this may sound, I have met plenty of investors who now do a few creative deals on the side, but for the most part earn real estate agent commissions. They’re making great money, too!
2. MLS Access: When you have your license, you can get full access to the Multiple Listing Service (MLS). If you don’t already have full access to the MLS, getting it is a mandatory step to taking your real estate investing to the next level.
Non-MLS based comparable sales research, whether free, such as Zillow, or paid such as RealQuest, are a joke compared to the kind of information you can glean from the MLS. Too many beginner investors are groping in the dark, unaware of what a property will sell for because they are using free tools rather than the real thing.
It’s important to point out that as powerful and helpful as MLS access is, that alone should not be the reason to get your license. You can get access to the MLS without having to spend the huge amount of time and money to get your license. 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 who is licensed, 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 anti-trust lawsuits the Realtor Association lost and so were forced to open up their MLS monopoly.
Redfin.com gives you free access to closed MLS comps in many major metropolitan areas across America.
Note: Most properties in this country are sold through the MLS, so when selling a property, it is almost always a wise move to get the property listed. In the past, having your license meant the added benefit of listing your own deals and saving money on commissions.
With the advent of flat fee listing services, it’s no longer a big benefit because these flat fee services are so inexpensive, it may be even cheaper to list through them than to pay your broker a small fee to list it yourself. Many creative investor licensees use a flat fee listing service, since it’s cheaper than having to pay their broker his cut.
CONs to Getting Your License
1. Significant Time and Money: When it’s all said and done, the cost can be several thousand dollars. And the time commitment is going to be at least 150 hours, perhaps more.
I recently spoke with a beginner investor who has been chipping away as best he could 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 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 he’s not making any money in real estate, and he’s letting a terrific investing era (right now), slip away. The advice I give (which I did myself) is to go do some deals first. Make some money. 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.
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 who are full-time investors. In fact, if you are a successful part-time 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’re waiting for bigger deals to close.
2. Not Educational: One of the biggest reasons 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, 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 and rents a 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’ll 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 dive into a 150-hour pre-licensing course is because education is within their comfort zone. They’re afraid of the real world and prefer the safe cocoon of Education-ville.
If you have no interest in making any money from the education you gather, 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 educational investments, don’t view getting your license as giving you insight on how to be successful in real estate. Instead, look at it as a necessary right of passage in order to earn a commission.
I would love to hear reactions and comments on this subject. Please share below!