The Case for Being a Realtor and Investor
As he took his place at the front of the packed auditorium the instructor began by telling a story. “I was once a real estate broker” he announced. “Years later, I became a real estate attorney.” He said “I did this so I could kill my own deals.”
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The speaker’s name was William Kozub and I took his class in 2004. I asked him once what he thought about me becoming a Realtor. He advised against it.
At the time, I was buying homes in foreclosure directly from distressed sellers. There weren’t a lot of short sales being done from 2001-2006. No, the sellers I was buying from had equity in their homes. You remember what equity is right?
William Kozub threw the word “fiduciary responsibility” at me. Boy, attorneys sure do love big words. He explained that as a licensed real estate professional I would have a fiduciary responsibility to the unrepresented sellers I was buying houses from. Furthermore, with a real estate license the law would consider me a “professional”. As a “professional” I would have an unfair advantage over the poor unsuspecting homeowner in foreclosure.
Thus, it would be a bad idea for me to be a Realtor – too much liability.
So I operated my investment business for six years without a real estate license. That is, until a funny thing happened on my way to building a vast real estate empire.
In 2007, the real estate market here in Phoenix crashed and I had to figure out a new way to make money. It occurred to me that there were some pretty good deals to be found on the multiple listing service and as a Realtor I could:
- Find these great deals for myself and others.
- Write offers for me and others on these great deals.
- Get paid for putting these deals together.
The other obvious perk is unfiltered and legal access the local multiple listing service. When I started fixing and flipping houses in 2009 this was an absolute must. How could I expect a Realtor to comp 20-40 houses a day for me?
Of course, my business model is much different today than it was in 2003. I don’t deal directly with homeowners in foreclosure anymore. I buy at the auction, from banks, or short sales when the seller is represented by another Realtor. This drastically limits my liability.
Regardless, I believe the pros outweigh the cons when it comes to being a Realtor and real estate investor. If you’re dealing with an unrepresented seller just be sure to disclose that you aren’t representing them in the transaction and that you intend to make a profit.