An Investigation Into the Age-Old Query: Should Investors Get Real Estate Licensed?

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This subject has been discussed to death on the BP Forums and the Blog. We disagree – while some of us are diehard proponents of a real estate license, others don’t need or want it. My good friend Serge S., for instance, who definitely belongs to the group who lives and dies by the real estate license, told me I was an absolute schmuck for putting my license in escrow with the State of Ohio. But I did it ’cause I hadn’t used it for a darn thing in 19 months…

If there is one thing about BiggerPockets, it is that there might be too much information and too many opinions, which can create a sense of confusion and a lack of unified perspective in a newbie’s mind. With so many deferring opinions, how do you decide?

Related: #AskBP 002: Should You Get Your Real Estate License?

The reason we disagree on this topic as much as we do is because our style of investing and our strategies cover the gamut, and while a license is potentially highly useful in some areas, it is quite useless in others. In this article, I’ll try to boil it down to the lowest common denominator by considering most commonly applied perspectives. Here we go:

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“I can always make a few bucks transacting deals.”

No, this is unlikely. According to Salary.com, an average real estate agent in America earns $35,000/year. And believe me when I tell you — in order to earn this amount in most towns USA, you’ll have to work it like you’ve never worked it…

My friend Mark Ferguson will disagree. Mark runs a successful brokerage in Colorado, and his license obviously makes him a lot of money. Mark’s primary job, however, is running a brokerage, not investing in property. In the final analysis, his investment cash flow, as compared to his brokerage income, is but a small fraction. Mark is a professional agent who invests in a few houses on the side.

This works well for Mark. There is a lot of synergy in what Mark does and how he does it. If you want to be a professional agent like Mark and eventually own a brokerage with many agents generating revenue for you, then a license may be a good thing. But this is an entirely different career track. At that point, you are a broker with a few investments, not an investor with a license.

So, unless you are choosing to be career-track agent, or unless you are satisfied with working like hell for perhaps $40,000/year, a license is not very useful to you as a means of generating meaningful revenue.

“Licensing will give me knowledge.”

That’s the biggest load of crap anyone has ever come up with, though Bill G. will disagree (did I just say that?). I’ve been to those classes, and I will unequivocally tell you that no useful information is underscored in basic realtor training – period. Now, CCIM is a bit of a different story, though it’s not at all clear that CCIM delivers information that couldn’t be learned elsewhere for a lot less money!

Most agents watch millions being made all around them, while they work for commission, which is less percentage than the tip I leave in a restaurant. With this being true, it has to be obvious that they are missing some knowledge. And while CCIM guys transact much larger numbers, resulting in much larger paychecks, this reality is still intact — buyers and sellers build wealth, while agents generate hard-earned income.

Believe me, if these guys knew what we know, they’d be the ones doing the buying, not transacting it. Of course, there are exceptions, but by and large, this is true!

This is a Ben-ism: Knowledge is good, but the right kind of knowledge is necessary.

Real estate licensing classes will offer some knowledge, but most of it is the wrong knowledge for investors.

Disclosure Requirements

What you need to realize is that if you have a license, you are held to a higher standard. You are considered highly educated and proficient, and therefore capable of taking advantage of the unknowing Joe Schmo.

While this is not an issue for some of us, specifically those who understand negotiation intimately, this does place disclosure burdens that we otherwise do not have. Furthermore, some people just don’t like realtors and won’t deal with you if you have a license – the sword cuts both ways, so to speak.

Why I Don’t Use a License

Simple. Spending my days trading hours for commission checks is not my idea of fun. Running a brokerage full of children-agents, each with their nonsense problems, is even less appealing to me.

But I understand why some people do it. And I respect that this is how they put bread on the table. As an investor, if someone brings me a deal, the last thing I want to do is use my license to nickel and dime. I want agents to come back to me with more deals – I let them get paid…

Related: Should I Get My Real Estate License? An Investor’s Examination of Benefits & Costs

So, Who Should Have a License?

As I see it, if you business model revolves around SFR asset class, having a license may make sense. It doesn’t matter if you are fix-and-flipping or fix-and-holding; SFRs are most easily found on the MLS, and to most easily gain access to the MLS, you need a license.

Furthermore, if you are buying SFRs, you are likely looking at doing substantial deal volume. And if this is the case, you can certainly save yourself a lot of money on commissions. This is what my friends Serge and Mark are doing, and this makes a lot of sense indeed!

Now, you couldn’t get me to start investing in SFRs in Ohio if you put a gun to my head. I buy multi-family, and not small ones. The MLS is useless to me — and you, if that’s what you’re after. Therefore, a license may be kinda useless as well.

So, investors: Now it’s your turn to weigh in — to get licensed or to remain unlicensed?

Leave your input below!

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.

34 Comments

  1. Andrew Syrios

    I think it really boils down to this; either find a great, investment-minded real estate agent (and there are not a lot) or become one yourself. You don’t want to settle for working with subpar or homeowner-minded agents.

  2. Mark Ferguson

    Ben, thanks for the mention!
    I have to correct a few things to correct.

    I don’t run a brokerage. I have a team within a brokerage.

    My investments make up a large portion of my income. I flip 10-15 houses a year averaging 30k in profit on each.

    I also have my 13 rentals bringing in 7k a month or so.

    The real estate team does great but it is a tough business.

    Fyi I saved about 70k a year on commissions on my own investments.

  3. Christopher Leon

    Nice job boiling this down @BenLeybovich

    I am a real estate investor with a license in Illinois. I originally got a license to learn the business of real estate because I didn’t know deed from title. I quit my job, rolled up my sleeves and began pounding pavement. Doing so, helped me learn the target area I wanted to invest in, learn what kind of tenants seek which properties, and the process of real estate transactions. I feel this helped me learn by application, and considering I was doing it as a career choice, I made some bucks in the process. In my first year as a broker I did 36 transactions! Now a days, all that ground work I did in the beginning is paying off today by having a concrete understanding of my target area, my target demographic of renters, and I experience little resistance when it comes to filling vacancies. I recommend getting a license, if you got the right plan. 🙂

  4. Vincent Grant

    Thanks for authoring this post. In 2005 I began my RE investing by purchasing SFR and Vacation Rentals. I have a real estate brokers license and discovered that I despise working as a realtor, I would much rather invest. Hence, I considering letting my license expire without renewing.

    I recently spoke to a CPA and questioned if it would be a tax advantage to keep the license or is it a waste of time. As pointed out in the post, the only advantage I see to maintaining my license is having access to the MLS and saving money when I sale ( if I sale, currently I only buy and hold ).

    I decided to keep my license because it gives me other options such as possibly starting my own brokerage, facilitating the sale of my rentals or starting my own property management company ( must have a brokers license to own a property management company in California )

  5. Brandon Sturgill

    Hey Ben, hope all is well in your world…thanks for the post. I just got my license and and am still struggling with the transition. It feels like an opportunity and cutting my nose off to spite my face at the same time. I like controlling my deals to a degree I could not without a license…but the exposure and liabilities are a bit intimidating as well. On similar note, I often-times wonder how licensed agents/brokers get away with half the stuff they do (so-called investing)…seems like plenty of disregard for fiduciary duties…

  6. jack c.

    Okay. So in a nutshell, if an investor or investment group is primarily dealing SFDR for flip and long term hold cash flow in other words non commercial, having an “in house” real estate license makes sense.

  7. Tim Oates

    I had my license for 8 years but I let it lapse in the mid 1980’s as my career path went in a different direction. I have now retired after 31+ years as an IT professional and am actively seeking properties to flip. Perhaps your situation is different than mine but not having my license is putting me at a distinct disadvantage in the market in which I reside. I plan to get my license again just so I can gain a little edge over the competition in picking up distressed properties to flip and to make it profitable, especially on the back-end when it comes time to sell.

    I live in the Orange County area of southern California where the median home price as of May 7, 2015 was $605,000 (OC Register, May 31, 2015). Of the 6,104 homes listed on that date 34.6% were priced at $1 million plus. Distressed property listings (foreclosures and short sales) as of May 21st were 182 which accounted for 3% of all listings. What’s my point? With the median price well north of half a million dollars and more than a third of all listings over a million dollars, finding an affordable investment to flip or buy and hold is nearly out of reach for the average investor. And the competition for the few properties available is fierce. How fierce, you may ask?

    Consider this:

    Yesterday, I attended an auction for a 1,635 sq. ft. 3 bed, 3 bath converted townhome built in 1964. The property was a mess and would need $35k – $40k in “known” rehab costs to make it marketable. Comps ran at $350k – $370k. The opening bid was $250k. In order to just break even on the property paying a 6% commission on the back-end the maximum I could bid was $270k. If I only had to pay a 3% commission on the back-end my approximate net profit would be nearly $23k. Not much, mind you, but better than breaking even.

    I mentioned above that the competition is fierce. By the time the gavel fell at the auction the townhouse sold for a whopping $330k! The only way this made any sense at all was if the winning bidder planned to live in the property and not invest in anything other than new carpets and toilets, all of which were missing. The flipping shows on TV have generated such a frenzy that people who don’t know what they are doing are paying ridiculous amounts just to get in the game. If I had paid $330k for the property and sold it for the upper end of the comps I would have lost over $60k paying a 6% commission on the back-end. Even paying 3% commission on such a bad investment would have still resulted in a huge loss.

    I evaluate 1 – 3 properties per day to determine if I can buy and flip them. I am finding that not having my license is frequently the difference between making an offer on a deal. The amount of money I could save on the back-end if I had my license and didn’t have to pay a full 5% – 6% commission would enable me to go after properties that are otherwise out of reach.

    Bottom line; I will definitely be getting my license again.

      • Tim Oates

        Jeff,

        I’m curious what your rationale is for stating that “investing in OC is a losing proposition” for most people. OC is a very desirable place to live and work which is why the population continues to rise, year over year. So it seems like a great place to invest.

        Consider a recent study published in the OC Register:
        “Orange County employers will create nearly 41,000 new jobs this year, a 2.7 percent increase from 2014. And employers will add an additional 34,300 jobs in 2016, a rise of 2.2 percent. At the same time, the county’s jobless rate is on a steady descent, if the predictions hold. It is expected to decline to 4.7 percent this year, after 5.5 percent in 2014, then again to 4.1 percent in 2016 and 3.9 percent in 2017.

        “Salaries are projected to rise 2.8 percent this year and 4.1 percent in 2016 – both gains well above the rate of inflation. Median family income in the county is expected to rise in 2015 for the first time in four years, then continue increasing in each of the following three years, piercing $90,000 a year in 2017.”

        I am sure there are other regions in the US where employment and salary growth exceed the aforementioned projections, but few regions can lay claim to a more temperate climate which continues to attract the masses in droves. So rising employment and rising salaries coupled with an extremely pleasant living environment are a winning combination and make OC a great place to live and raise families. The downside, of course, is that while these positive characteristics make OC a great place to live they also serve to drive the price of a home out of reach of many first-time home buyers. That said, OC is still a great place to invest.

        So Jeff, I ask you again, why do you think OC is a “losing proposition for investing”? And if OC is not the place to invest, what area(s) do you recommend, and why?

  8. Mario Mormile

    Ben- this article is extremely relevant for me. I am in the process of obtaining my real estate license. But going back to what you have repeated in the above comments- does it make sense in the overall business plan? Thanks for sharing!

  9. michael Hoey

    For the most part, all of us drive a car. As I tell my teenage daughter” driving is a privilege” and buying, holding and selling real estate should be no different. For the most part it is a legal transaction and as new drivers should go to driving school we should always encourage people to consider learning real estate at a licensed school. Learn about investing options and strategies at a bank. Ask questions about properties stopping in or via the phone or email at your county office. I get tons of misinformation on the internet and before you spend time getting a deal going and realizing too late that your up to your eyeballs in debt (or worse) do your due diligence. KEEPING your license is a different story, as one day I will be debating the amount of money I spend to keep my license is cost effective or not.

    For the most part in Illinois the test is mostly about knowing the Real Estate Act of 2000 and your duties as an agent. Once I started working as an agent I was hoping it would be more of an apprenticeship but it wasn’t( I had been a union electrician in Chicago for 22 years and their appenticeship was top notch). I wanted mentoring, getting in on deals but for the most part you are on your own. The brokerage is all about making money for the brokerage ( as it should) and investing is making money for yourself.

    Getting a license is an individual choice and sets the course for success. If you don’t want one because someone tells you it’s a waste of time is wrong, they should know better. You can find deals on or off the MLS, and if you have a license you have access to TONS of information about properties. NOW if you have been in the business for a long time, learned it all on your own, and are willing to share that info on Bigger Pockets or your blog make sure you provide short cuts and knowledge so that the newbies aren’t exploited and ripped off.
    Real estate is a dog eat dog business.

    Thanks to all of you for your input.

    I began looking at investing

  10. Jeff Brown

    Hey Ben — Some interesting takes for sure.

    Your opinion of agents is, for the most part, spot on, at least in my experience.

    Most Realtor classes would love to be merely worthless. 🙂

    CCIM training, contrary to your belief, cannot be found other places, at least not the comprehensive real estate investment approach.

    What most investors so badly need simply isn’t abundantly available — highly educated, experienced, and skilled real estate investment brokers/agents. Most investors, even those with years of experience, just plain do not have much of the knowledge needed to make things happen the way they’d much prefer. Their relative success tends to exacerbate this, as they don’t know the questions to ask, so can’t find the answers that would turbo charge their results.

    One of your most astute observations, Ben, hinted at disclosure. When the licensed investor makes an offer, they must disclose their licensed status to the seller in the offer, in writing. This almost always spurs the seller into wondering what the agent/buyer knows that they’re missing. It often muddles the situation, or at least makes things more complicated than necessary.

    Taking on all the liability coming with a license solely for MLS access isn’t a fair trade from my perspective. Spend time finding ‘the guy’ in your area who actually knows what pros know.

    • Ben Leybovich

      I agree, Jeff. Although, I have to tell you – I don’t see any difference in broker quality with CCIM designation vs. without. I know what the curriculum says it will teach, but in my interactions with these guys I’ve struggled to identify what it is that they learn there. Jeff – I know as much or more, and I am not CCIM…

      They all seem to be looking for the same thing – the sucker, and I’m not one 🙂

  11. Oscar Navarro

    Hi @Ben L (user link not working for me)

    Great post to revisit the pros & cons of this subject. Interestingly enough to me because I am licensed in California and just yesterday I was looking at properties in other states for investment opportunities; I wondered if the cost of being licensed in those states for those purchases (and possible future sales) would be worth the time & cost invested to be licensed there and “work” in those states.

    The initial thought is related to the income aspect of the commission split. Theoretically if I consider 2% of a $2 million dollar property that I plan to hold, then the investment of the license and related isn’t bad right? After all even if I had to give up 40% of the $40,000 commission to taxes and the broker who holds my license, I would still take $24k on a property that should additionally give me cash flow. Where is the negative?

    I understand having an expert that is local to the market handling the transaction, but honestly no one on this planet will handle my interest better than I will. And if I am with a local broker that is knowledgeable & stable in the market, then they will have contacts that will help facilitate most aspects of due diligence.

    Even if I were to only perform 1 transaction like the example above per year in the state, I believe the cost/time invested to acquire the license would be worth it.

    At the end of the entire discussion is as you mentioned, if its part of your plan, then it will work.
    Am I wrong? Delusional maybe? Let me know your thoughts.

    • Ben Leybovich

      Oscar,

      I think you’ll discover that if you are not local, the problem for you will be the management of that which you buy, not the acquisition. You need people on the ground, and if so, you’ve got to let them make some money…:)

      Think past trasactional stuff; think big picture!

      • Oscar Navarro

        Very valid point Ben. My question still looms regarding the license aspect. Whether I invest as an investor only or as a investor with a real estate license, I will still be in need of management.
        I like the thought though.. always look at the Big Picture. That and having an exit strategy are probably the two best pieces of advice I have heard and try to hold dearly.
        Thanks again Ben

  12. Brendan Morin

    Great post! I think you’re spot on in your analysis, from a transactional perspective at least. However, that’s only one reason you might want to get your license. For those of us with plans to operate our own Property Management company it’s a legal necessity. I’m getting my license for this reason only with no intent to work for commissions on deals. That said, I know a lot of investors who would love an investor-minded agent. While you’d probably get screwed left and right on your commission (admit it, we investors are not easy clients), I could see it being a great way to build up a very large network in your area, which has much more value than what you could ever make on commissions.

    • Ben Leybovich

      Absolutely, Brendan – to run property management in most States you’ll need a license. But let me ask you – are you freaking nuts? Why would you want to run a management company? Do you know what’s involved? This is the hardest freaking work you’ll ever do…

  13. Bevla Reeves

    I hope to get where @markferguson is one day…right now as a newbie, my license is a hinderance and just recently I considered giving it up!

    I only got my license to have access to the MLS, I have no desire to be a real estate salesperson!

    But I’m going to keep working my plan with a license for at least until the end of the year and see if it turns into an asset.

  14. Andell Straker

    Hello everyone. First off, thank you for the blog. Just a few weeks ago i finally found an investor in my area (not as easy as i thought it would be by simply posting ads in the local newspaper). This happened primarily due to where i work within the hospitality industry currently and i’ve been talking to every guest who would listen to me on the topic of real estate investing. This gentleman related with me quite humorously and at the end recommended i get my RE licence so that i may widen my range and accessibility to investors within my country who for the most part, i believed to be more of a myth since they are so difficult to reach out to without putting out bait of some sort. As such I was about to start the process today and came across this blog.

  15. rachel zhang

    Grass is always greener on the other side.
    I am not an agent. Even through we have access to zillow, trulia etc for market data, I really want to see is the statistics catered to specific area/zip code and the trend. MLS would give me better data analysis, right? I am looking at a longer period of time for market analysis. I am more interested in transactions in the best time period than get the best price in a wrong time. Can MLS access give me that advantage? Another equivalent question is where else I can get the market data to do analysis?

    commission is a small amount t pay compared with the big picture.

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