Do you have to have a real estate license to invest in real estate?
For BiggerPockets, my name is Brandon, signing off.
OK, OK. Let’s be serious. No, we don’t think that every investor needs a real estate license—in fact, a license is overkill for most investors. That doesn’t mean there aren’t good reasons for some people to get their license. After all, hundreds of investors choose this path each year.
Some see a license as a way to learn the ropes before investing. Or they perceive being an agent as a path to a paycheck. Maybe you love the real estate industry, and want to pursue agenting as a full-time career. Yet ultimately, most realize that—while there can be advantages—a license is typically a long and expensive detour.
Perks of Being a Real Estate Agent and an Investor
Having a real estate license can come in handy for an investor. If buying and selling investment properties is your primary source of income, why would you want to limit your access and abilities? Truthfully, a real estate license can serve as an essential element of your real estate business—even though, again, it’s absolutely not necessary.
There are a few reasons that this is the case.
Direct access to your local MLS
First and foremost, having a license gives you access to the local multiple listing service (MLS). While there are certainly other methods of access, having your license means you won’t rely on other agents, friends, or colleagues for access, and you can quickly find good deals. You can also post homes and rental properties without having to work with an agent.
A licensed real estate agent can get into almost any property that is listed for sale with a special key and lockbox. In other words, you don’t have to wait for someone else to go see a property.
If the home is vacant, you can head over anytime, assuming the home has the special lockbox present. If the home is not vacant, you can set up a time to view it without having to fit into another agent’s schedule.
Make more money
Every time an investor sells a house through another agent, they spend about six percent of the sale price in agent commissions. And when they buy property, their agent also collects up to three percent for facilitating the transaction.
This means that on a typical purchase and sale of a property, an investor could access about six percent of the property’s purchase price in extra profit… if they didn’t have to give that money up to an agent. If you buy a property for $50,000 and sell it for $100,000, that’s $6,000 in additional profit—assuming your buyer didn’t have their own agent—you could have if you were your own agent on the purchase and sale of that deal! With just four deals per year, having your real estate license could earn you an extra $30,000.
Therefore, as a real estate agent, when you buy a property, you can represent yourself and use that commission toward your down payment, repairs—or a trip to Jamaica.
Controlling your own deals
Being your own agent allows full control over your real estate transactions—whether you’re searching for commercial property, short sales, or ideal fix-and-flips. You can submit offers to and negotiate directly with listing agents. You deal directly with the lenders, the appraisers, the inspectors, the closing attorneys, and all other involved parties. You control your marketing, sales, and showings.
Licensed agent-investors can stop worrying about minutiae. Will your agent drive to your property before every showing, turn on the lights, open the windows, and put out fresh cookies? Follow-up with everyone who has viewed your property to get feedback and recommendations? Send marketing materials to renters in the neighborhood who might be looking for a house to buy? Meet the appraisers at the property?
Enticing listing agents
Imagine you’re the listing agent for a bank-owned foreclosure. And imagine one day you get a call from an agent whose client is interested in buying that property.
That agent says to you:
I’m going to submit an offer on this property. All you need to do is get the bank to accept the offer. After that, I will take care of letting my client into the house for inspections, I will take care of getting the utilities turned on for the inspections, I will complete all the additional paperwork, I will work with the title company on the title search, and I will work with the closing attorney on scheduling the closing.
Then, on the day of closing, you don’t need to even show up. I will get your lockbox and your sign from the property, I will get your commission check from the closing attorney, and I will drive all of it over to your office immediately after the closing is finished to drop off to you. Oh, and by the way, I’ll also give you my half of the commission as a bonus, so you’ll earn twice as much money on this deal.
Do you think the listing agent would be interested in working with you? Of course they would. If you can provide these perks, agents are more likely to let you know when properties are getting ready to hit the market or have price drops. They might even clue you in regarding how much the sellers are willing to negotiate.
In a competitive real estate market, the early bird often gets the worm. As a real estate agent, you can be the first to know of real estate deals that are listed. I am not a real estate agent, but many of my investing friends are. And I’m often jealous of their incredible tools that make them faster than I can be.
Why Real Estate Investors Shouldn’t Get Their License
Wow! That sounds pretty awesome, doesn’t it? But before you run out to get your license, let me explain a few of the downsides.
Actually getting your license
Well, for starters, becoming an agent is not as easy as signing a document. There’s a lot of extra work to have your own real estate license. First, you have to take an extensive class (depending on the state, the class could be up to 120 hours in length), and you must pass a difficult test, which may require long hours of studying. Plus, you’ll probably be required to earn about a dozen hours per year in ongoing education credits to retain your license.
And if you want to be a Realtor, not just a real estate agent, the National Association of Realtors requires additional coursework.
This takes away time from actually investing in real estate!
Working under a broker
In addition, once you have your license, you need to find a broker to work under, which involves additional fees and responsibilities. Do you want to essentially work as an employee—or have your own independent business? While the support of a brokerage can be a great help, it’s an additional burden for real estate investors.
If you do a bunch of deals, you’ll end up doing a bunch of paperwork. This is the most annoying part of having your license. You’ll be responsible for writing your own offers and submitting forms to attorneys, agents, brokers, and the MLS.
That said, there are people who can handle most of the paperwork for you (for a fee), so even that’s not required if you really don’t want to or can’t do it. But again, part-time investors may find the paperwork requirements a bit daunting in terms of time commitment.
When you have your real estate license, you are held to a higher standard. You must disclose to buyers/sellers that you are a licensed agent, and you can’t “knowingly take advantage” of a buyer or seller. Some investors feel that having to make these disclosures and being held to this higher standard negatively impacts their business, and that is why they don’t want to get their license.
Cost… with no guaranteed money coming in
And we’re not just talking about exam or initial license fees. Once you become an agent, you’ll pay several thousand dollars in fees each year just to hold onto your license. Of course, if you’re making money as an agent, maybe this isn’t such a big deal.
All of this training and expense doesn’t even come with the guarantee of a paycheck. In fact, you could easily go three to six months before seeing a penny from a closing. Even if you market yourself as a seller’s agent or a buyer’s agent—hoping having more clients brings in more cash—you still likely won’t see cash for a while. Plus, the average real estate agent only barely makes minimum wage. To make any money, you have to hustle every day and invest in a variety of marketing efforts.
Distraction from real estate investment
And finally, the reason I’m not an agent: I want to focus on my investing.
Look, I’m already busy enough, between raising a toddler, investing in real estate, trying to pretend I’m a surfer, and hosting the top real estate podcast on earth with over 60 million downloads. I don’t want to add one more possible distraction to my life.
When it comes to real estate, I’m going to let my agents do what they are really, really good at doing, and I’m going to focus on what I’m really good at doing. Plus, I don’t need the extra income.
If I had a job I hated and needed to replace that income quick, you know what, I’d probably become an agent. And I’d learn how to be a successful one. Maybe that’s you? But maybe not.
So should YOU get your license? Really, it’s a personal decision. I know that’s a lame answer, but the truth is there are plenty of examples of individuals who have had a license and found success and others who achieved greatness without it.
I know that was about as clear as mud. But hey, I tried.
What else can I tell you about being an agent-investor versus being strictly an investor?
Ask me in the comment section below.