Do You Need a Real Estate License to Flip Houses? Nope. Here’s Why
Having a real estate license isn't as necessary as many people think it to be. In fact, look at the market and you'll find thousands of successful real estate investors who don't have a license. But if you search online, nine out of ten sites will tell you to take that test.
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They're wrong—especially for investors. Do you need a real estate license to flip houses? What about wholesale, or for buy-and-hold investing? Absolutely not. If you haven't applied for a license or are wondering whether it's really that important, here are a few reasons to look the other way.
Real Estate Is a Full-Time Job
Do you want to be an investor? Or do you want to be a real estate agent? Because if you get a real estate license, you pretty much have a job—selling other people's properties. That will be all you do. You'll prospect for someone who wants to list their house. You'll list their house. Then you'll work with buyers and lenders to sell their house—and then you'll make a commission.
You'll also have to abide by someone else's rules and regulations—most likely, the broker. If you want to be a real estate agent, none of these restrictions cause trouble. But savvy investors will likely find them cumbersome.
Just because you have a real estate license doesn’t mean you can simply do every real estate deal by yourself. Many states require you to work under a brokerage firm or broker until you earn your brokerage license.
Unlicensed, you can buy property from any brokerage. Things aren’t so simple with a license: You must inform your broker before purchase.
Laws and regulations exist, and they stink. You aren’t free to conduct business in the way that you want to conduct business. There will be restrictions to what you can and cannot do.
On top of that, every brokerage office has its own set of rules. Some require training hours; others mandate calling potential clients or holding open houses. Brokers also charge real estate agents a fee, depending on their organization and setup.
Commissions Savings Aren’t that Great
People who are focused on investing—serious investors like fix-and-flippers with the goal to flip 10 or 12 houses a year or rental investors who are trying to have 10, 20, or 50 rentals—might think they'd save so much on commissions if only they had their license. That's not true.
Let’s look at a standard six percent commission. In a transaction, three percent of the commission is for the agent who represents the seller and three percent is for the agent who represents the buyer. So when you calculate how much you might save as an investor, you only save on one side of the transaction. Nothing to sniff at, sure—but does it really balance the other expenses?
A real estate license comes with added responsibilities. First, you’ll need to disclose to your buyers or sellers that you are a licensed agent—and many investor real estate agents have found, to their dismay, that this negatively impacts their business and personal portfolio growth.
Licensing Isn’t Easy
You can’t just call the state licensing commission and have them add you to a list. The process is lengthy and time consuming. In fact, if we break it down, you would need to put in about a 100 hours of coursework and plenty of studying before you take the exam—which only qualifies you for a license. Once you are pre-licensed, your brokerage may request you take additional courses, too.
Expensive Licensing Process
The process requires a lot of money, too—from prep courses to exam fees. Depending on the state, you’ll spend four weeks to three months listening to someone preach about how you should be a good salesman rather than teaching you anything about real estate. You’re going to spend about three months—and probably around $1,500 to $2,000—to get your real estate license.
And once you're licensed, the brokerage will require more of your time and money. Additional costs also include license maintenance fees, board memberships, multiple listing service (MLS) fees and subscriptions, ongoing training, errors and omissions insurance, internet data exchange (IDX) subscriptions, and local and real estate agent board fees.
Some may say the money spent is worth it because you build your agent network—but that's just an excuse. Investors automatically mingle. The best return on investment I've ever had is buying folks a $3 coffee.
…And Even More Surprise Costs
Now that you’re the real estate agent, all the things your agent once covered, like marketing and listing your house, are your responsibility. Now you have to pay for lockboxes (the centralized ones are about $300), signs, professional photography, and staging.
See? There’s no easy, “Oh, I’m going to keep all this commission!”
If your goal is to be a flipper or have a lot of rentals, being an agent will take away time you could otherwise spend concentrating on your investing business.
And there are so many administrative tasks in real estate deals. Most agents hire a transaction manager or a transaction coordinator to help, which costs even more money. Yes, you can do them yourself, but do you want to be stuck doing a $10 per hour job when you really need to be focused on finding your next rehab deal?
Ask licensed real estate agents, and they’ll tell you all about dedicating half the week to paperwork. It’s frustrating! As a licensed real estate agent, you write your own offers and submit forms to lawyers, brokers, and agents—and don’t forget the MLS.
Yes, you can hire assistants—but that’s another cost. Plus, you may not be entirely pleased with the results because they aren’t under your complete control.
MLS Access Isn’t All That
Ask any licensed investor, and they’ll likely say MLS access is the biggest payoff. But remember: Simply having a real estate license won’t suffice. You also need to join the local board and a brokerage and pay any associated fees for access. Yes, the database holds a substantial amount of information—but you can find it from real estate search engines too, minus the fee. Plus, many deals on the MLS are expensive or expired.
So, Should I Get My Real Estate License?
A real estate license offers some benefits. There are good listings on the MLS, and it may help you form better relationships with other agents. You even can take commissions on deals. Most importantly, you enjoy the status of being a “licensed real estate agent,” which not many have. You’ve worked hard for that title!
However, having a license doesn’t qualify you as a real estate professional for the IRS. It is your work—the quality and the number of hours—that help you gain that status.
When you look at the most successful real estate investors, you’ll find an interesting trend: Most aren’t licensed. Their single-minded focus on the work they do well—investing in real estate—drives their success.
Are you planning to commit to real estate as a career? What do you actually want from your license: financial freedom or a sales job? Because time is money. You want to be in your office hammering out phone calls, emails, and buying and selling properties to grow your real estate empire—not working for someone else and making them richer.
I know this is a controversial one, and I’m looking forward to the heat.
Bring it on below! I’ll take it, and I’ll give it back.