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.
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.
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.
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.
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.
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.
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.
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!