Is a real estate license worth it?

Question

Is obtaining a real estate license useful for real estate investing?

I am currently in the process of educating myself about real estate investing. From what I have read so far, purchasing multi-families may be the route for me. I would be getting a FHA loan, occupy the house for the required year and then repeat. Ideally as I progress through the process I wouldn't have to be using an FHA loan.

I'm currently a full time student and work part time. In other words, I don't have much free time. So I'm trying to figure out where to put getting a real estate license on my priority list.

What are some of the pro's?

Are there any cons?

David Dachtera · Answer

Whoa! Fred!

Take the caps lock off, buddy!

David Stafford · Answer

Hi @Camron Cottam I have been a licensed realtor in PA for about 15 years and for the same amount of time, an investor. When I first began investing, I figured having a license could only help: It doesn't take much work obtain, doesn't cost much and much like a driver's license, assuming you don't royally screw up, you never have to go through the process again (only continuing ed.)

There are advantages: access to MLS, access to Title companies and all the benefits they bring, some advantage of potentially grabbing properties first, and also working as an agent to help other buyer/investors to find properties as well. I purchase nearly all of my houses via Sheriff Sales (foreclosures) or via Wholesalers and while anyone can go that route, I can quickly and easily pull M&J reports (Mortgage and Judgement) to dig into the financial history of the property much more quickly or easily than a non-licensed person. Often times, it's the speed at which you move that makes the difference between getting the property and buying it right. Knowledge is always king.

There are also some things to note (I wouldn't call them disadvantages): the NAR (National Assoc. of Realtors) keeps a very watchful eye on what licensed people do and if you step out of line or do anything questionable they will not be slack on doling out the proper punishment. They have high expectations of licensed people (as they should; you are dealing with most people's largest ever investment). Coincidently, you cannot plead ignorance to anything in the case that you do screw up whereas a non-licensed person can get away with mistakes. Yes, I have E&O insurance but that only goes so far. There are also a number of inherent costs associated with keeping your license, having access to the MLS and every other service so it's not free to keep your license but for me, it's more than worth the yearly fees I am required to pay. You have to split your commissions with your broker but for me, when I buy a property to flip, I'm making my money on the rehab and I'm little concerned with the commission at the close of the property. I have an agreement with another agent that if he finds the property and I purchase it, he gets the exclusive right to list it when it's ready to go back on the market after the rehab. Why do I do this? Because he has 30+ years experience as a realtor, has decades of repeat business and can often find (or already has) buyers. I don't always have time to do the "normal" realtor tasks because I'm trying to find and purchase the next property so it's well worth my time to have him handle the more traditional aspect of working with clients and selling my properties. Because of the quality of work we do, because of the location of the flips and because of the establishment of the agent, we do well.

I hope this has been helpful. There are a zillion posts about whether or not to get your license; advantages and disadvantages, etc. Poke around on BP and fill your brain!

-Dave

Account Closed · Answer

I have heard a number of podcasts on this very topic. The general consensus seems to be that you do NOT need to get a real estate license to do most kinds of real estate investing. If it suddenly becomes critical along the way based on the niche that you end up in, you will absolutely know it.

If you are interested in multi-family and haven't already done so, you may want to check out Ken McElroy's book, "The ABCs of Real Estate Investing" and his "Advanced Guide to Real Estate Investing"--these are often touted as the "bibles" for multi-family investing.

And, of course, the BP podcast is always FULL of ideas and inspiration, if you haven't checked that out yet.

Good luck on your journey!

David Stafford · Answer

Sorry, I should have clarified. Buyers do not typically pay their agent. The seller is responsible for paying the agent commissions. This industry, like most others, is about building relationships and networking. Having an agent with whom you trust and work closely is part of your network. Maybe your agent will hear from another client or some person who wants to sell their property and the agent will think of you. It's just another way of coming by deals. They won't all come from the MLS. Many do not. Also, yes, the agent gets paid for finding renters.

Think of the economics maxim of 'highest and best' with regards to you, your talents and your time. Going to settlements and finding buyers and listing your properties may not be the highest and best use of your time. Perhaps finding and underwriting deals is what's most appropriate for your time. Hence, a great agent can do what he/she does best and feed you deals.

-dave

Aaron Lovett · Answer

I think your reasons for being licensed are sound, although "money on the side" isn't an automatic process.  The pool of friends and family is finite, and there's no guarantee even they will choose to use you instead of an experienced professional.

It will cost you to be an agent - calculate the expenses in your state.  Tuition for education, testing fees, licensing fees, MLS fees, local and national Realtor association fees, etc. It all adds up.  If you do enough business to pay for the cost of being licensed, go for it.  If not, keep in mind that you can get the education without going all the way to getting licensed, and if you work with a good agent who communicates well, you can learn a ton about the process along the way.

If you do get your license, you may be able to pay extra on your E&O to cover you on properties that you own.  Owner/Agent selling and buying isn't uncommon and is easily insurable.  It does increase the premium, but that's just an additional cost of doing business.

David Stafford · Answer

@Camron Cottam

You can certainly find a great realtor in your local area (who works with and understands investors, because most realtors don't) and you can learn virtually all there is to learn from that realtor without ever getting your license. An obvious advantage of that relationship is that the realtor will feed you leads. And of course, on the buying side of the transaction, you don't pay the commission.

With regards to being licensed and buying/listing your own deals, many brokerages don't like it and discourage it. I'm not sure of the rules state by state but in PA a broker cannot disallow an agent to sell his/her own property but they often frown upon it due to insurance liability -- the brokerage cannot insure you against yourself in the event that something goes wrong. You have to pay your own E&O deductible to cover your butt and it's typically really steep. Also, if/when you begin to get into purchasing with IRAs or 401Ks, you cannot participate in the sale of the property. It has to be "arm's length" meaning, someone else not invested in the property would need to sell it. You cannot directly profit from the sale of a property. This has nothing to do with being a realtor but a good heads up for you down the road and it follows the same logic. I'll stop talking now!

-Dave

David Dachtera · Answer

@Camron Cottam,

It depends on what you think the license will do for you.

The pre-licensing classes prepare you to deal with buyers and sellers, interact with a sponsoring broker, fill in the contract templates, etc.

There is no content specific to REI. It's all good stuff to know, certainly, and will help you in the long run.

As for being an investor, no - no licensure is required.

Eliott Elias · Answer

I hold my license and am an investor. It gives me the ability to make extra income through representing clients and making 3% on everything I buy and sell.

Jay Thomas · Answer

As a licensee, when you get another agent to sell your property, does the agent need to disclose that the owner is a licensed agent?

Ed Lee · Answer

Ah, got it.  Thanks for all your help and input here Dave!

Is a real estate license worth it?

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