Whether or not you should obtain your real estate license is a huge debate within the investor community. I am an advocate of obtaining your license. There are many reasons why I personally find it beneficial for my business/life model. In fact, I’ve already written one article on it a few months ago in regards to the “freedom producing” ability it creates. The freedom perspective is more of a lifestyle reason, but another key factor I like about obtaining a real estate license are the fees and costs.
“Huh?” is probably what you’re thinking and rightfully so. But please, let me explain…
From a business perspective, what better way to light a fire under your “behind” and create motivation/incentive then to start every year in a hole. Yes, I’m sure a business professor would probably pull their hair out, but this is the logic behind my thought process.
Get Working & Recoup the Costs
Yes, there are cost and fees associated with it. If you get your license and do nothing, you will lose money; that’s pretty black and white, but that’s why I love it. Assuming you don’t like just wasting money, you better get to work figuring out how you’re going to pay for these fees and costs!
For the sake of not turning this article into a mini novel, I won’t go into all the ways that a license allows you to legally make money, but there are many. That said, my point being . . . get out there and start using some strategies so you’re not losing money on your license.
You might be thinking, “well, aiming to do the bare minimum to cover your fees and costs doesn’t seem like a great goal” and that is a valid thought; however, stop and think about it. In the course of doing the “bare minimum to get your real estate license paid for, you’ll be opening so many doors and relationships that not only will you cover the cost of the license, you’ll start to see positive cash flow from your license investment (remember, that’s what it is).
This is hypothetical, but by no means a ludicrous potential scenario. You help someone as a buyer’s agent (friend or family) and they are happy with your customer service. You collect the commission from the purchase of the house to put towards your license costs, but then something else happens. Because they had such a good experience, they refer you to an investor they know. This investor is looking for a good wholesaler, and because you have access to the MLS, you can provide them with Grade A wholesale packages that include comps and all that good stuff a Realtor can provide. Your simple goal of just recouping costs for your license has now turned into a relationship that is potentially worth well over your cost.
I’m a tightwad and I hate losing money. I’ll admit, knowing I have a recurring cost hitting me every month is very very annoying, but the only way to get rid of this annoying feeling is to be able to “justify” having the annoying feeling. I accomplish this by using my license to generate income, which then in turn puts me at ease, as not only my “cost” is covered, but it helps to expand and create positive cash flow for my business.
The License Expense Serves as a Self Assessment Test
This section may sound harsh, but numbers are numbers and rarely do they lie. If your total cost for a real estate license is $5,000, and in month four of the calender year you have only generated $1,500 of real estate revenue, we have one of two conclusions we can generally make:
- You are a lazy bum.
- What you are doing isn’t working.
Both of these lead to the same outcome. Perhaps real estate investing isn’t the business for you. The laziness could be coming from a lack of enthusiasm because you just don’t find real estate that exciting. If what you’re doing is not working, and you have no other ideas, then again, sounds like real estate just isn’t for you.
By being in a hole, it helps me monitor just how productive (or lazy) I am being, while also monitoring my strategies (or lack thereof) in regards to their efficiency. If my business is having a hard time overcoming the hurdle of paying for my license, let’s face it, something wrong!
Be Smart About It
What I am NOT saying is to go and cut a check for $5,000 in January and say, “Hey, now I’m in a five grand hole, time to get myself out!”
Now there WILL certainly be some absolute upfront costs. You will need to pay for classes and the test in order to get licensed, but all other costs should hit you in a monthly form. The point I’m making is once you have figured out what your expense structure is (every brokerage offers different options, so I can’t use one blanket example), you can forecast “how much” it will cost you. This way, you can put yourself in a “paper hole”, but won’t actually literally be in a financial hole that deep.
Just so we can put some numbers to things (I’ll estimate), we’ll take my situation in my first year:
- 40 hours of class time, test fee, state fee: $350
- Broker fee: $300 per month (includes MLS fee and gives me 100% of commission on any sale – I could pay less per month, but then would get LESS of commissions)
- Associate fees: $750 per year
Forecasted 1 year cost: ~$4,700
So, in my first year, that $4,700 was the number I needed to “accomplish” in order to see whether or not I was cut out for this business. It annoyed me (which motivated me) and kept me accountable for my strategies on what ‘was’ or ‘was not’ working. In a sense, it was sorta like a boss looking over my shoulder making sure I was doing what needed to be done. An annoying, yet efficient motivator!
Why I Love Real Estate
I’m sure some are thinking, “Why put myself in the hole when I can just add an agent to my team?” I have no argument for you on it – it’s a very valid point in regards to this. On the other hand, there are many other advantages to having a license, but this article only dived into the motivation and self-monitoring components.
That is what makes real estate so great. If your model allows for you to NOT get a license, and you are plenty motivated without it and are generating profits, then more power to you!
I personally enjoy the freedoms the real estate license gets me, along with the multiple avenues to generate profits. Even if it comes with the cost of that annoying little boss always looking over my shoulder!