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?
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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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.
“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.
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…
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!