Do you need a real estate license to invest in real estate
The short answer is, “it depends.” Most people I talk to about getting into real estate contemplate getting their license for the wrong reasons. The phrase “getting into real estate” can mean a million different things; wholesaling, fix and flip, buy and hold, sell houses, etc.
Depending on what your goals are in real estate, it may be beneficial for you to get your real estate license. It is a great way to get an education in how to run a transaction as a buyer or seller, as well as understanding all the different parties involved in a real estate deal.
Should a real estate investor get a license? Pros & Cons
The Pros of getting licensed
- Credibility in a deal
Whether you’re investing or working as a residential real estate agent, you quickly realize your local area is a small world. Having a license shows credibility and an ability to facilitate a transaction to get a deal done, especially if you’ve worked with the other agent in the past.
- Access to the MLS
This is one of the most popular reasons investors want to get their license. Having access to the MLS allows you to look at real time property status changes, quickly pull comparables, and easily schedule showings without having to go through another agent. Although the Zillow and Realtor marketplaces provide tools for browsing properties, the MLS is a better data source for making investment decisions.
- Use commissions for negotiation
On the buy side, if I do not have a license, my buyer agent will receive a commission. If I do have a license, I can represent myself in the deal, write up the purchase agreement and receive a commission. On the sell side, I can save money by only paying a buyer agent in the transaction rather than paying a listing agent AND buyer agent.
- Network with other agents
A benefit of getting your license is the relationships you’ll build in the industry. In just one deal, you’ll communicate with other agents, a transaction coordinator, a title company, a lender, inspector, appraiser, and people in skilled trades. As an investor these are the people in the industry you would need to know anyways. In addition, networking with others in the industry is a great way to find off market deals.
- Control the transaction
If you understand every element of a deal from start to finish, you can keep it on track and get it to the closing table. When I first started as a realtor, I had to write down each step and fill in the blanks once we got to the step so I could learn what was next in the process. I did that for about 50 deals, then it became second nature.
After every part of a real estate transaction you can be proactive to keep things moving; after an inspection, contact the lender for an appraisal, fill out the related addendums, etc. If I don’t have my license, I’m relying on my agent to remain proactive and depending on how busy they are, some things can fall through the cracks.
The Cons of getting licensed
- Takes time and money to acquire and maintain
In general, here are the minimum costs associated with acquiring your real estate license
Depending on your state you have to take a pre-license course anywhere from 40-120 hours. This can be completed within a week or two, can be in-person or online, and cost ranges from $200-$400. Next, you apply for the license with your state.
In Michigan, the application is $88 and the testing fee is $79. Once you pass the test, you join a brokerage in your state. The brokerage may have their respective desk fees and commission splits. Lastly, each year you’ll have to renew your dues. In Michigan, the cost is approximately $2,000 annually.
- Must hang license with a broker
When you acquire a real estate license, you must hang it with a broker. In the 80s and 90s all brokerages had physical offices and would charge agents a variation of desk fees as a service to help them build their businesses. This model is shifting to be more agent-centric, as more cloud-based brokerages spend less money on pretty physical locations and have less costs to pass onto the agent. Either way, you are subject to maintaining transaction compliance and higher ethical standards.
- Paperwork is on you
One of the worst parts of having your real estate license is the amount of paperwork. You’ll be responsible for writing up purchase agreements, getting disclosures filled out, and submitting forms to lenders, agents and title companies.
When you SHOULD get your real estate license-questions to ask yourself
There’s no clear cut answer on this topic. It really depends on the goals of the individual. I would ask myself the following questions:
1. Is buying and selling properties, whether yours or for a client, your primary source of income? If this is a YES, then you might as well get your license simply to earn commissions
2. How many deals do you plan on doing each year? If your real estate goal is to buy one property a year for 10 years, then I would NOT get a license. Annually it costs me approximately $3000 just to maintain my license with the state, the broker and the MLS. I’ve had numerous friends and clients casually mention to me that they’re thinking about getting their license. They usually just say it’s because they want access to the MLS and don’t have a valid reason.
3. What is your goal when you want to “get into real estate”? Do you want to both buy properties for yourself and help clients buy and sell? Or do you just want to own a few cash-flowing duplexes.
What if I DO want my real estate license? How to get it…
- Complete the pre-licensure course
- Fill out the application for your state
- Study and pass the exam
- Hang your license with a broker
- Start selling your ass off
What if I decide NOT to get my real estate license?
If you realize getting a license is not the best use of your time and resources, I would recommend finding an investor-friendly agent. When it comes to finding a deal, buying a home to live in is very different from buying an investment property. I want to work with an agent who has experience buying and selling his own cash-flowing investment property and who has helped clients do the same.
