Answered: Should You Get Your Real Estate License?

by | BiggerPockets.com

A few years ago Mindy Jensen wrote a very neutral blog post about the costs and benefits of obtaining your real estate license.

Just a couple of weeks ago, serial entrepreneur Engelo Rumero wrote another article about why you should not get your real estate license.

And so the great debate continues. As with almost any debate, the ultimate answer is, it depends. It depends on what your goals are, where you are along your journey, and what works best for you.

For those of you newbies and nontrepreneurs (i.e. non real estate entrepreneurs), it makes a lot of sense to obtain your license. For the seasoned veterans and entrepreneurs, you can do without it.

Personally, I am in the process of obtaining my real estate license. I have completed all 168 hours in under two months for less than $1,000. Now I just need to pass the exams. I have no intention of becoming a full-time agent, nor do I want a second job. But I would like to be able to look at my own properties, negotiate my own deals, and earn a commission every time I purchase a property.

In this article, I am going to delve in a little bit deeper to look at who should get their real estate license and who should not. And maybe, just maybe, this debate will end once and for all.

Related: Investors: Should You Get Your Real Estate License?

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Who Should Get Their Real Estate License?

There are three types of real estate investors who should obtain a license: Newbies, nontrenpreneurs, or investors looking to slowly build their buy-and-hold portfolio by closing on just one to two properties per year.

Little Cash to Start

Typically, newbies have little cash to start. One of the biggest reasons to obtain a license is that you will get paid for every deal that you do. If you are purchasing a property for $300,000 that’s almost $10,000 earned right at closing. Think of it this way: If you do a 3.5 percent down FHA loan on a deal where you represent yourself, you immediately get 3 percent back. You’re in the deal for a net of .5 percent. Call up Brandon Turner, there might need to be another chapter inserted into The Book on Real Estate Investing with No (or Low) Money Down.

Market Perspective

Being able to get a feel for what properties are selling for in a particular market is crucial. If you’re a newbie, you likely do not know as much as a seasoned veteran. Gaining access to the MLS shows you what similar properties are selling (and have sold) for.

Fewer Obstacles

In a hot market (i.e. Denver), it is vital that nothing other than yourself is preventing you from putting in an offer. With your license, you will be able to view properties whenever you like. You will be able to quickly run your own analysis and put an offer on a property quickly. If you do not have your license, you will be at the mercy of your agent. If he or she is good, they will likely not have much time, which could be the difference between you getting your offer accepted or not.

Aligns Interest

Agents are paid a percentage of the purchase price. In other words, the more you pay, the more they get paid. While the law states they must act with their principal’s best interest in mind, I am sure they are not losing any sleep if you pay an extra $10,000. That’s an extra $300 in their pocket with an equal amount of work.

With your license, your interests are completely aligned. Would you rather pay $10,000 less for a property or receive an extra $300 at closing? If you’re a semi-rational human being, the answer is the former.

Now that you have a good idea as to who should get their license. Let’s look at those who should not.

Who Should NOT Get Their Real Estate License

The two types of people who should not get their license include real estate entrepreneurs and real estate veterans. Here is why.

Not a Core Part of the Business

If you are a real estate entrepreneur (excluding being an agent), it makes much less sense for you to obtain your real estate license. Here is why. The core of your business is not to transact real estate deals, it’s finding, funding, flipping, financing, or wholesaling deals to provide you, your company, and your investors the highest possible return.

As an entrepreneur, you should be putting 100 percent of your efforts toward optimizing your business. You should be focused on scaling your business, getting that next deal, expanding your network, etc. Doing another deal will be far more lucrative (and educational) than brokering a deal.

Additionally, doing multiple deals simultaneously becomes next to impossible. Not to mention that since this is not what your core focus is, there is a high probability of a mistake being made, which will likely cost you down the road.

Good Network and Funnel of Deals

“Your network is your net worth.” In order to highly increase your success as an entrepreneur, you will need to build a strong network to tap into. In this network, you should have a slew of real estate agents who are willing to help you transact any deal at any time.

When you are in a hot market, your best deals are likely not coming from the MLS. They are likely off-market deals that wholesalers, investors, or other people in your network are sending to you. Even for those in the beginning stages of network building, rather than spending the time to transact your own deals, spend that time networking to find someone to do it for you. It will pay off tenfold down the line.

No Need for Commission

As an entrepreneur, would you rather have 3 percent commission on a deal you just transacted or 100 percent of your next deal? This is a no brainer. Getting that next deal will almost always be more lucrative. If it’s not, and you lose money on that next deal, I am sure that you will have learned a valuable lesson. Either way, it is much more valuable than a 3 percent commission.

Related: 6 Reasons You Should NOT Get Your Real Estate License

Real Estate Veterans

To me, those who are managing a large buy-and-hold portfolio to sustain their lifestyles are entrepreneurs and therefore likely do not need to get a license. 

If you have already “made it” in terms of real estate investing without your license, there is a low likelihood getting one now would be that beneficial. I am sure that you have built yourself a good team of people who have their license and can help you. While not as useful now, I am sure having one 10–20 years ago would have proved helpful.

Take Brandon Turner for example. He doesn’t have his license and he is one of the most successful real estate investors I know. At this point, he has built himself a great team and a great network where getting his license would not be worth his time.

Conclusion

While it never hurts to get your license, for the newbies and nontrepreneurs it makes a lot of sense. Your interests are aligned and you are likely just doing one to two deals a year to slowly and gradually build your rental portfolio. You do not need to worry about scale and are not always on the hunt for the next deal. Deploying your time and resources toward transacting a deal makes sense because you essentially get a 3 percent bonus every time you close a deal for yourself.

For the entrepreneurs in real estate, it makes less sense because your time and resources can be deployed in other areas such as finding, funding, and completing your next deal. Getting the next deal will be far more lucrative and educational than earning a commission on your current deal.

With that, I hope to have ended this great debate.

Do you have a real estate license? Do you find it’s helpful? I would love to hear your thoughts in the comments below!

 

About Author

Craig Curelop

After developing a huge love for real estate investing and personal finance, Craig decided to join the BiggerPockets team as a financial analyst. Over the past few years, he has looked at hundreds of financial models of startup companies. His experience will help BiggerPockets reach the next level as a startup company. Craig has a passion for helping others get out of their “comfort zones” to get what they want and achieve the “impossible.” In his spare time, Craig enjoys traveling, hiking, exercising, and sports of all kinds.

23 Comments

  1. Neil Schlimgen

    Craig,
    Great article, the fact that you won’t the answer based on the type of investor helps alot. I am planning on holding a full time job and only acquiring 1-2 properties a year, so I’ve been exploring the possibility of getting my license. Did you take your credits online or do you find it beneficial to take the credits with a teacher in person? Have you found an investor friendly brokerage to hang your license once obtained, and what is their fee structure?
    Thanks for the great posts – Neil

    • Craig Curelop

      Hey Neil,

      Thank you! I’m glad you liked the article. You are in the same position as me so obviously, I would suggest getting your license. If you’re super close to buying your next deal and getting your license would delay that, maybe it makes sense to get your license after you close the next one. I closed my first deal with an agent, but will transact myself going forward.

      I did everything online. The class cost me $399 and I probably paid about $150 in extra fees including fingerprinting and test taking. So after two months and $550, I had my license.

      I am not looking to close my next deal until mid-2018 so I’m in no rush to hang my license anywhere. Then I will start having to pay MLS fees, errors & omissions, and all of that. Not necessary for me right now.

      However, I do know the brokerage where I will hang my license. It’s called the Brokers Guild (based in CO) and they have a flat fee, low cost structure. Something along the lines of $400 or $500 per transaction.

      Hope that helps!
      Craig

  2. Greg Parker

    I would recommend it for anyone in any type of real estate industry. I have been in some form of the real estate industry for 30 years and I just got my license a year ago. I wish I had done that 30 years ago. Not paying the commission on a deal can mean the difference between a profit or no-profit. It costs me around $1,000/year. Well worth the cost, and it opens up another whole area of contacts and information. The agents at my firm are a wealth of information. All I need to do is send an email and I have experts willing to help.

    • Craig Curelop

      Hey Greg – Good point. I did not get into the impact of the real estate network.

      Though, just from a monetary standpoint, I do think your time is better spent finding another deal, networking, or doing anything else besides the crazy paper work in transacting a deal.

  3. Cassie Roberts

    I would consider myself a new investor. I’ve purchased 3 SFH in the last year as rentals. I also got my real estate license this past year which cost a little under $1000 when all said and done. What I didn’t know and I live in the state of Minnesota so it may be different elsewhere is that you have to operate under a broker, you aren’t just your own agent. If I want to buy and sell properties, tour active properties or even have access to the MLS I have to be supervised by a licensed broker. I looked at three different companies/brokers and it would cost me on average $2,300 a year just to maintain my license and I work full time and know I wouldn’t do enough business each year to justify paying that. Plus, you have to do some many deals a year to keep in good standing with the brokerage. I didn’t realize that I had to pay a monthly fee to access the MLS and would be forced to join local realtor associations which have annual fees. Everyone is in a different situation, but for a newbie investor it hasn’t helped me yet. I am able to pay $150 a year to a broker to keep my license from going back to the state, but with that all I can do is give referrals to other agents in the firm and collect a small commission off that.

    • Craig Curelop

      Hey Cassie,

      Unfortunately, yes. You do have to pay errors & ommissions, MLS fees, and be registered under a broker. However, I would encourage you to do some research on different brokers. I know there are a few here in Colorado that do a flat fee commission. For example, if you sell a $100k property and your commission is $3k. Rather than the broker taking a percentage of your $3k, they will just take a flat fee of $400.

      These type of brokers typically provide little to no support, but it’s just a cheap place to hang your license.

      As a newbie who has no intention in transacting for other people, you need to make sure you are making the right choices in who you pick for your brokerage.

  4. James Jones

    Great article Craig! What about someone who is a newbie, but with goals to become a real estate entrepreneur, rather than someone with a full-time career who is in real estate for a second stream of income, retirement, etc.? Do you believe it would be beneficial to obtain a license in a situation such as this?

    • Craig Curelop

      Hey James – Thank you!

      I would say it probably does make sense for the newbie with aspirations in becoming a real estate entrepreneur. You will learn a lot from taking the class and will likely benefit from the savings on doing your own deals. However, once the business picks up, I would say transacting the real estate deals yourself should be one of the first things you stop doing. It will likely be more beneficial to find that next deal or do extensive networking, etc.

  5. Zach Staruch

    I’m sorry, but for a business that pretty much revolves multiple expenses and where profit, especially for a new investor, can be just a few thousand dollars (or less) I think not having your license is a way to leave a LOT of money on the table in each deal. Assuming you are going to make a business of REI, even as a side gig, the only time I would suggest not getting your license is if a close friend or family member has their license and allows you to access their MLS and writes up deals for free or a small flat fee.

    • Cassie Roberts

      I hear what you’re saying, but what if we only plan on buying rentals to hold onto and will at most buy one per year, then is it still worth it? The other key factor is where you are doing business. I live in a small town in northern Minnesota and we can buy 3-4 bedroom homes for $50K-$60K that make good rentals. As an agent I can take 3% commission on my sales so even it I purchased a home for $60K I would only get $1,800 in return, not covering what I have to put in per year.

    • Craig Curelop

      Hey Zach – if you’re just doing a few deals a year, I agree, the money you save can make a big difference. However, if you are running a business where you are doing 10+ deals per year, there is better use of your time and money than looking at deals on the MLS and writing them up yourself. You should be focused on doing the next deal because your next deal should net you more than a commission from your own real estate deal.

  6. Wendy Wachhorst

    Hi Craig,
    I live in the Bay Area in California, very very expensive. I have bought two places in Las Vegas, one all cash and one financed. My husband has done all the legwork and paperwork because I don’t understand the procedure so I think I should get a license so that I understand the workings of buying real estate. The language, procedures, lingo, etc.

    • Craig Curelop

      Hey Wendy,

      I used to live in the Bay Area so I know exactly what you’re talking about. If your plan is just to acquire a few buy & hold properties, then yes, it makes sense for you to get your license. However, if you are a real estate entrepreneur looking to hustle and do as many deals as possible, I think your time could be better spent elsewhere. Hope that makes sense.

  7. Jon Minerick

    I believe that a license is NOT appropriate or necessary for most real estate investors, mainly because it is cheaper, faster, and easier just to use flat fee services (e.g. list on the MLS for $100). There are so many tools out there now for understanding the market, which do not require access to the MLS. In addition, by going to the listing agent directly as a non-represented buyer, you give yourself a better shot at getting your offer accepted as the listing agent has the potential to capture the entire commission (not just the listing agent side). Finally, the costs of a license are huge, in particular the time commitment. Here’s a BP post I did that directly addresses the expenses of getting and holding a license in California: https://www.biggerpockets.com/blogs/9561/55035-what-are-the-costs-and-steps-to-a-california-real-estate-license

    • Craig Curelop

      Hey Jon,

      Thanks for sharing! I did not compare the costs of obtaining your real estate license in different states. However, I do know home prices in CA are pretty high, which means commissions on real estate deals are pretty high. If it costs you $2k-$3k to obtain your license and you do one deal a year that is worth $600k, thats $15k saved ($18k commission -$3k cost of obtaining license).

      $15k is definitely not chump change to the smaller investor who has under 10 deals, which is why I think it makes sense for those just looking to obtain 1-2 deals per year get their license.

  8. Christine Takayama

    Is the value in the courses the information/material or the access to properties/MLS etc. when completed and shingle hung? I’m assuming that you have to apply for the lincense within a certian amount of time following the completion of the course, or is that not the case?

    • Craig Curelop

      Hi Christine – In Colorado, you must apply for your license at a maximum of one year after completing the course. The value for me lies on:

      1) Gaining that 3% commission every time I do a deal
      2) Access to the MLS
      3) Being able to look at a property whenever I want

      I do not plan to transact a whole lot for other people so I do not care as much about what I actually learned in the class. The most important thing is learning how to fill out the forms. It’s kind of like when you take a class in High School or College. Do you remember all of the material you learned? Or are you satisfied with obtaining the degree?

  9. Harold Felder

    Great article. I agree with the fact that getting your license puts you at an advantage, especially in a hot real estate market. I have been investing for about five years and decided to get my license last year. Upon getting my license, I am able to evaluate my own deals a lot quicker since I now have access to the MLS. I don’t have to wait on my agent. I can also go and view a perspective property immediately, instead of waiting until my agent gets some free time.

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