5 Reasons Getting Licensed is Your First FATAL Investing Mistake

“Real Estate changes lives,” is how David Greene, Bay Area Real Estate Agent, began the introduction to his BRRRR book. And if you haven’t figured it out already…. I am here to tell you that Real Estate in fact changes lives…..for better or worse! Hopefully you’ve already found some success.

But if you haven’t yet, you were once like me. Looking for my “open door” into Real Estate and with one deal under my belt, just about anything Real Estate related got me so ecstatic. My girlfriend always makes fun of me when I’m talking to her about my latest Real Estate discovery. She knows I found something good when my face turns red from forgetting to breath while I’m telling her about it. To this day, I live, breathe (when I remember), and sleep Real Estate.

In fact, I got so excited a few months ago, I signed up for Real Estate classes after I was furloughed from the school I was working at. I was going to become a Real Estate agent! I even got one of my friends to sign up for classes around the same time. We were going to take the agent world by storm!

It seemed like a good idea, you know? I wanted to invest, why not be my own agent? I also knew a bunch of people in California where I live who would instantly become my clients as well. I was thinking, I could just do deals for them and make enough money every year to fund my own investments until my passive income supported me enough to retire. Sounds like a no-brainer, am I right?

I started to meet with agents and investors in my area, all while powering through as many Real Estate books as my eyes could handle (many of them you can find in the bookstore above!). I took away a lot from each of my experiences and hope to prevent the eager, uneducated investors from getting into a career that won’t fulfill them.

Here are 5 reasons why getting licensed is your first fatal Real Estate investing mistake:

1. Time

While becoming an agent does not require a college degree, it does require college level coursework that must be completed before you can sit for the licensing exam. States usually require a student to complete 150 hours of coursework spread out over three classes. Also, there are time constraints within the coursework too.

I know for “Real Estate Express” (a more popular online Real Estate school) you have to take nine tests total (three tests per class not including the chapter quizzes) in order to get the certificate you need to sit for the licensing exam. And after you start one class, you have to spend at least 18 days going through the course material before you can take the three tests (two practice and a final) you need to move on to the next class.

And all of this needs to be done while you’re trying to find and close on your own deals! With only so many hours in a day, finding time to effectively commit to both is nearly impossible if you plan on sleeping at all. Without a full effort into either venture, a realistic time frame for finishing classes or closing on your next cash-flowing rental property can be stretched out, only elongating the road to financial freedom.

2. Costs

I was pleasantly surprised when I did some research into the cost of going to Real Estate school. The average cost online was anywhere between $300-500. Compared to the average cost of college tuition (roughly $25,000 per year in state according to the National Center for Education Statistics), this cost is relatively low to the potential income you could be making. So you’re probably thinking, “See Andy! You’re wrong. By going to Real Estate school, I am saving thousands.”

Unfortunately, not really. While the cost of going to school is much lower, the payments do not stop there. In order to have the term REALTOR© attached to your name, you need to sign up with the National Association of REALTORS© (NAR) which can cost hundreds in nondeductible payment every year. Then there are other local associations where dues can get up into the thousands per year. It may be required by your broker to pay dues to one or more of these associations in order to be employed by them.

And the fees don’t end there. Depending on the broker you choose to work for, you typically have to pay a “desk fee” to be employed. This fee varies depending on the broker, but ultimately is another charge you have to pay every month (or every deal). Then there are marketing fees and the cost of gas to get you from place to place. If you are unable to close any deals, all of this is done without any checks coming in at the end of the month!

3. Working for a Broker

I remember when I wanted to get my license, I thought that I could pass the test, get my license, and just start hitting up the MLS and doing deals for myself. I had finally found my way around working with agents!

Not quite. You see, at least in California, when you become a “licensee” (a license holder without an association affiliation) you have to “hang your license” with a broker for the first two years in order to have access to the MLS. Otherwise, you’re in the same position as the average buyer! It is the broker who provides all of the “perks”, if they have any to offer at all.

That’s where I feel that a lot of aspiring agents get burned. When you “hang a license”, there are fees associated with that too. This covers association dues, insurance, training, office usage (printers, supplies, etc.) and anything other technology they may offer. With technology playing the factor that it does in our society today, brokers have much more to offer than they once did. For instance, I know many of the bigger brokerages (Compass, Keller Williams, etc.) have insanely in depth and interactive apps that allow agents to work with their clients at a much more efficient rate. But be careful, this also means that brokers are in a position to charge more of a fee.

You see, when you close a deal (either on the buyer or seller side) you make a commission that is usually 3%. In California where the average house hovers around $500,000, that is $15,000. That’s some check! But this is where the fees are paid off (taken out of your commission check).

Any agent should take extreme consideration when it comes to broker fees. How are those fees being used? Do you find it valid for that broker to charge what they do? Maybe they provide you with valuable training, technology, or client connections that help you close more deals. In that case, I’d say it’s worth it. But do your best to not get burned by people who aren’t up to date in the industry.

Unfortunately there are too many brokers who are difficult to work with, charge up a storm, and blame their agents when the business isn’t growing how they thought it would. Without a broker who is providing a state of the art service to their agents and clients, you’ll never collect those commission checks.

4. Commission Based Salary

I consider myself a self-starter, so the idea that my income was totally up to me really fired me up. I couldn’t stand working at a job where I produced more than someone else and walked away making the same amount of money as they did. It drove me nuts...and ultimately led me to want to become an entrepreneur.

But for some, having that reliable income every month is crucial to feeding a family, paying expensive bills, and having money to go on vacation and retire. If you have a good income that supports your Real Estate investing, why sacrifice that for the sake of becoming an agent? Granted there are some months where agents make an absolute killing and take home close to a million in a year, but there are also years when they don’t. Home listings are down over 25% compared to last year right now. Are you going to be able to afford the slow months?

All of this is going to require a continuous hustle to bring in new listings and interested buyers which means time away from the ultimate investing/financial freedom goal you may have for yourself. It may be more cost and time efficient working your current job and using your savings to house hack (buy a property and rent out the remaining rooms) which could lead to free living!

Now, I can understand not enjoying a job you’re working at (believe me, I’ve been there), but is your motivation for becoming an agent solely to allow you to leave your unfavorable job? If so, you may want to rethink your decision. It is not your work’s fault that you hate what you do, it’s your fault! Simply changing your attitude around work can sometimes make all the difference. When I realized that my job was simply a means of funding my Real Estate goals, and did not define who I was as a person, my tensions with work eased up. My end goal of obtaining enough passive income via Real Estate to retire now remains my ultimate motivator.

Even if you aren’t currently making as much money as you’d like every month, I have read some great articles on the Bigger Pockets Blog which discuss how to earn more money at your current job. The steps laid out in these posts have personally helped me and countless others increase income at our non-Real Estate jobs.

5. Focus 

Becoming a successful agent can be very complicated even if you know a few investors or potential buyers/sellers in your area already. Think about this: you have a buyer ready to go right when you get licensed. You helped them find their dream home, they closed, they loved you, you got paid, and both parties lived happily ever after. Sounds great, right?

WRONG.

While you helped them find the home they always wished for, that may be the last time they ever purchase property with or from anyone, let alone you. You have to maintain a constant funnel of clients coming in and out in order to maintain a consistent or growing income. Now, working with investors can certainly bring in a ton of annual business, but this also takes away from your own personal investment portfolio.

Anyone who’s spent time finding deals knows that there aren't weather patterns where home run deals fall from the sky for just anyone to pick up and make money on. It takes strategy and understanding of an area to find those successful deals.

If you are spending time finding deals for prospective buyers, when are you going to find your own deals? And you know that if you aren’t finding consistent deals (sometimes multiple deals a month) for your investors, another agent or wholesaler certainly will. With all of that said, focusing on your investments only, without being an agent, can save you endless amounts of time and thousands in costs in the long run.