There are a lot of questions on the BiggerPockets Forums on if it is worth it to have your Real Estate license. I have been a Realtor since 2002, when my father got me in the business. My father has been a Realtor since 1978 and he has always had a few rentals and done many fix and flips. When I first started in the business I loved doing fix and flips, but wasn’t so keen on selling houses to strangers. I sold enough houses to get by, and focused on the flips since those were much more fun. I always thought it would be smart to buy rental properties, but I was young and not very good at saving money.
Then in 2008, I started selling REOs and completing broker price opinions for banks. I loved the REO side of selling houses and I have become very successful at it the last few years. I am a HUD listing broker as well and love HUD, I can’t buy HUD homes myself, but I have a great article on how investors can great deals ion HUD homes here. I think the reason I love REO is because I can communicate through email and I am a natural introvert (another popular forum discussion). With REO came more money, more savings and a desire to grow that money into something more. I did a lot of research on franchises, business, the stock market, bonds and decided rental properties were the best investment out there.
When I was doing fix and flips with my father, we bought most of our properties at the public trustee auction and it did not matter if we had our Real Estate license or not. When we sold our homes, we saved 3% on each transaction, because we did not have to pay a listing agent a commission. When I started buying rental properties for myself in 2010, I bought everything off MLS and saved a commission on each purchase. We are buying more flips off the MLS now as well, we are now saving a commission on the buy side and the sell side.
Even though we save a ton of money on commissions by being agent, that is not the biggest advantage to having a Real Estate license. The biggest advantage is having a huge advantage buying properties over those that do not have a license.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
There are no set commissions in Colorado or most states, but most of the deals we purchased off of MLS offer a 3% commission to the selling agent. I will use 3% for this article, but commissions can vary on each property. I also mention we save the full 3% on each deal, this may not be true for everyone. We are able to keep 100% of our commissions because we pay a flat yearly fee to our broker. Brokers offer many splits to their agents, some may be 50/50, 70/30 or higher depending on what services they offer and how much business an agent does. There are also limited service brokerages that will hang an agents license for a small monthly fee. They offer no office, no receptionist, but they are cheap and great for a Real Estate agent who does a few deals a year for themselves. If you are thinking about getting your license, remember you may not be taking home that entire commission.
Saving Money on Commissions
I will take you through an example of how much we save on a typical flip. The savings is similar on a long-term rental purchase, except there won’t be any commission on the sale since we are holding the property. Let’s assume we purchased a flip on an REO property for $100,000, fixed it up and then sold it for $170,000. The bank offered a 3% commission to the Real Estate agent that represented the buyer on this property. Sometimes banks do not like it when the buyer is also the Real Estate agent and they may have stipulations they won’t pay a commission in these instances. We use an LLC to purchase our flips and my dad will usually sign for the LLC and I will be the agent on the deal. That way the agent is different than the end purchaser and the bank will pay a commission.
On the purchase end we can structure the deal so we get paid $3,000 for our commission or we will waive our commission and pay $3,000 less for the property. The benefit to getting the $3,000 is the extra cash in our pockets for repairs or other investments. The benefit to reducing the price is, we won’t have to count the commission as income and pay taxes on it. It saves money in the long run to reduce the price if that is an option. However, many brokers will only allow agents to take no commissions on one or two deals a year. We can do it as much as we want, since we are on a 100% split and the monthly fee brokerages may allow you to make as many no commission deals as you want as well.
On the sell side we save the 3% as well since we are the listing agents and do not have to pay someone else to sell the property for us. Again, commission are negotiable and you may be charged more or less for an agent to sell your home. Three percent of $180k is $5,400 that we save by not hiring another agent. We structure this as a no commission deal, since we will not have to pay taxes on the income again. Total savings is $8,400 on this one deal alone. We flip about ten homes a year, and it is easy to see we save a lot of money by being agents.
The biggest reason I would suggest every Real Estate investor get their license is because of the advantage it provides when finding deals. I still buy most of my long-term rentals off of MLS and we buy flips on MLS as well. We purchase short sales, a few REOs and even a few fair market sales off the MLS system. As an agent I have access to MLS and an investor without their license does not. Most properties listed in MLS are listed on other sites like Zillow, Realtor.com and others, but the information is not as accurate or updated as quickly.
I search my MLS hot sheets multiple times a day to look for good deals. The hot sheets show me any new listings that have come on the market since the last time I searched my hot sheet or any other time I specify.
As soon as I see a good deal, I set up a showing, go see the house and make an offer if it is worth it. With help from my staff this entire process can take less than an hour if the home is vacant. If the home is occupied, I may have to wait a couple hours for the showing to be scheduled. It does not always work, but many times the person who sends in an offer first has a huge advantage.
On a short sale, the sellers will accept the first offer that comes in, even if it is low because they just want the house sold and know they aren’t getting any money out of the deal. In a rising market like we have in Colorado, I occasionally see fair market sales priced below market. If I can get a full price, cash offer in first I have a great chance of getting it accepted before any other offers come in. It is trickier with REO, since many banks have guidelines that a property must be on the market for a certain amount of time before they will look at offers. There are some banks that will look at offers that first day and if I am first, I may get my offer accepted before more offers come in and a highest and best situation arises.
If I were not an agent, my time frame for making an offer would be much longer. I would have to do more work to find new listings on Zillow or another website. Once I found a great deal, I would have to contact my agent. I would have to wait for them to find time to set up the showing and show me the property. Then I would have to wait for them to write the contract and I would have to come in and sign the contract, before it was submitted. I have to hope they understand they importance of time and getting that offer in ASAP. Even if they are a super fast, great agent, it may take them half a day or an entire day to get all that done. Someone else could have already submitted an offer and had it accepted before my offer was submitted.
Knowledge of the Market
As a Real Estate agent MLS also provides me with a wealth of sold information. I can look up sales from 10 years ago if I want to, as long as the sale was completed through MLS. MLS is a great tool for me to determine value quickly, and easily. I am also constantly around houses as a Realtor, I am constantly determining values for my sellers and buyers and I almost always know the market without having to pull up sold info. Knowing values is the most important thing for a Real Estate investor to know an being a Real Estate agent gives me a huge advantage.
Connections in the Business
As a Real Estate agent I am constantly talking to lenders, other agents, title companies, buyers and sellers. I found my portfolio lender, because other agents referred me to them. My portfolio lender is awesome and will give me as many loans as I want as long as I qualify. That may change at some point, but without them I would be struggling to finance properties, especially now that I have 10 mortgages.
Other agents have referred me to sellers looking to get out of their homes, because they know we buy flips. I know the best title companies, the best lenders and the best Realtors. I also know which companies and Realtors to steer clear of, because they may kill a deal with their incompetence.
Another advantage of being a Real Estate agent and especially a Realtor is people see my name and know I work by a code of ethics. As a Realtor I have to abide by a code of ethics which is much more strict than the actual law. Even if I am not acting as a Realtor, but trying to buy a house, I have to abide by this code. If I am contacting off market sellers and trying to convince them I am trustworthy, it is much easier as a Realtor. I can point them to my website, show them I have been in the business for over ten years and screwing them over would hurt me a lot more than it would help me.
Disadvantages to Being an Agent
There are some disadvantages to having a Real Estate license and being an investor.
- The biggest one for me, is I am limited to what houses I can purchase, but this won’t apply to 99% of agents. Since I am a HUD broker I cannot buy any HUD homes no matter who has them listed. None of my immediate family or any agents and their immediate family can buy a HUD home either. Bank of America will not allow me to buy any of their listings or even short sales because I list REO for them. There are a few other companies I work with that have the same policies and I can never buy an REO that I have listed. It is a clear conflict of interest for me to purchase I home I listed that I determined value on for the banks.
- I have to disclose I am Realtor when I market to sellers. I don’t think this is a big disadvantage, but some people on the forums think they get a better response if they are not an agent.
- Some people feel a code of ethics is too restricting for Real Estate investing, I do not feel this way. If you are a Real Estate agent, it is easier for buyers or sellers to file a complaint against you with Real Estate commission or whatever body governs Real Estate in your area.
- The biggest reason most do not get their license is the cost and time it takes. Getting a license is not easy in most states, it takes hours and hours of classes and tests and the tests are not easy. Once an agent has their license, they have to take continuing education, keep insurance, pay for MLS, pay board dues, pay to hang their license or split their commission.
It can cost thousands of dollars a year to be a licensed Real Estate agent, but one or tow deals a year will easily make up for that money. Not only are you saving commissions, but the biggest advantage is the deal you get, because you were faster than everyone else. To a flipper, one deal can mean $20k, $30k, $40k or more in profits. To an investor buying long-term rentals, one deal can mean thousands of dollars a year in cash flow.
Do you have your license? Why or Why Not?
Photo: Andreina Schoeberlein