I imagine many real estate investors who are new, part-time or just thinking about investing ask this question after doing their due diligence: Do I need a license to buy real estate?
This is a great question, regardless of the scale of investing you plan to do. I know it was a question for me when I was in that stage, and here I am, over 10 years later, a real estate investor in Dallas. I’ve met a lot of people who are very successful with—and without—having a real estate license.
There are different schools of thought about whether an investor needs a real estate license to become successful. So I want to explore the question, perhaps shedding some light and insight on the subject. And hopefully for those of you who are considering real estate investing, it will help you decide whether you want to get a license or not. Let’s explore the advantages and disadvantages to getting a real estate license.
Advantage: Access to the MLS
A potential advantage and reason why many get a real estate license is the desire to list their own investment properties for sale. The Multiple Listing Service (MLS) is THE place to sell retail real estate in the U.S. Typically, for an investor to sell a property on the MLS you will need a real estate agent, and you will have to pay a commission to that agent for his or her services in listing the property for you. In general, it will cost the seller of the property 3 percent of the sale price to have a licensed agent list and sell the property on the MLS.
It’s no secret that many investors are very profit-focused. They would like to keep the 3 percent for themselves. So if the investor has his or her own real estate license, the investor will get to keep the 3 percent and list his or her own properties on the MLS.
So, it makes sense. There’s a monetary value for the decision, and the 3 percent commission may or may not be worth it to you in getting your real estate license.
The same holds true for real estate investors who may not be fixing-and-flipping but instead may be buying-and-holding for rental purposes. The MLS gives them a place to list their rental properties. Of course, without a license they will need a licensed real estate agent to list their properties. And many investors would rather get their own license to save the fees they would have to pay the agent to list their rental properties.
So, you can see there is a monetary benefit in these situations also, but at the same time you may determine it’s not right for you. Even with a license you may not want to go through the work it takes to manage and execute an MLS listing. You might rather pay a listing fee to another licensed agent who will do the work for you. Again, this is your decision, and you must choose a direction based on what makes sense for you as an investor.
MLS: Data, Information & Comps
Many investors choose to get a real estate license for no other reason than to simply get access to the MLS. The MLS is a huge database of every single property that is for sale in your particular market. And there is a wealth of information and data on there. It may be a great avenue for you, as a real estate investor, to find real estate investing deals. It sure is nice to be able to have the access yourself as a licensed agent versus having to depend on a licensed agent to search the MLS to find those deals for you.
It can be very beneficial, from an investor’s standpoint, to have access to the MLS so you can run your own comparables—quickly and accurately—and then use that information with your preferred means of comparing the properties. If you’re trying to find out what to pay for a house or are trying to sell one, it’s nice to be able to do it on your own without having to rely on a licensed agent to do it for you. Keep in mind to get access to MLS, data and information in there, you must be a licensed agent.
Other Sources Besides MLS
I must acknowledge there are other sources for this data. However, the MLS is the timeliest and the most comprehensive source. And it’s the source other sources are using on websites that require a monthly membership fee. They’re tapping into the MLS to get the same information. Other sites may not require you to pay to access their service; however, their MLS data may be a little delayed—whether it’s hours, days or perhaps weeks.
The MLS is the most accurate, timely and comprehensive source, but again, you need a license to have access to it. It may make sense for you to get a license to simply have access to the MLS or have a licensed agent do the work for you when it comes to searching for comparables or deals.
Advantage: Professional Education
What might prompt you, as an investor, to get your real estate license is the overall education provided with getting your license. What I mean is that it’s no secret real estate is quite a complicated industry when it comes to the legality of conducting real estate transactions. There are a lot of rules, procedures and forms.
Things change at a rapid pace in the world of residential real estate. And when you have your real estate license it is a good way to stay abreast of the rapidly changing real estate laws, rules, regulations and procedures.
The education comes to you either as the initial education you get to secure your license or the continuing education that is required of you to maintain and renew your license. There’s a lot of education available to you as an agent, and that alone may be one of your motivators to get a real estate license.
It’s a good way you can stay on top of things and maintain a level of professionalism, expertise and credibility with the sellers with whom you’re working to either purchase or sell properties. A license also may help you gain some credibility, expertise or expand your network as a real estate investor.
Advantage: Additional Revenue Stream
I’ve seen real estate investors pursue a real estate license because it can create an additional revenue stream for their business. What I mean is probably best described in two very common examples, both of which I have experienced as a real estate investor here in Dallas.
Real estate investors who have a license can create this additional revenue stream within their business or as an additional asset to their business because they have the ability to change their “hat”—changing from an investor to a traditional real estate agent when it comes to dealing with property sellers.
Sometimes a real estate investor will find himself or herself meeting with a seller and for whatever reason it’s just not possible to purchase the seller’s property under your real estate investing hat. In these scenarios, you can offer the sellers a solution if you are a licensed real estate agent by perhaps listing their house on the MLS as their licensed agent and selling the home that way.
This way you can still generate revenue from that relationship with the sellers, perhaps getting into a contract to list their house as a real estate agent and earn a commission. It may not be as much as you could have earned as an investor, but it’s still a way to monetize the lead and the time you’ve invested with the seller. Even more importantly, it provides the sellers with a solution to sell their home even though it wasn’t the solution you originally intended.
Disadvantages: Cost & Time
Now, let’s talk a little bit about the disadvantages of a real estate investor having a real estate license. I think most prominently and importantly, you’ve got to acknowledge the cost and time it takes to hold a real estate license in your state. Just to get the license there is a significant investment in time and money. There is course work required—books, class time and online time, depending upon your state and its requirements. There is a rigorous process you must go through in order to secure a real estate license.
It takes time and money to complete the course work, and it takes time and money to take the test. You must pay to take the test. You must study for the test. You must take the test to get issued the license. Then the license itself in your state is going to cost something once you pass the test.
There are also other expenses to consider once you do get the license. For instance, to have access to the MLS, it will cost you money on a regular basis. You’ll have real estate association dues you’ll owe, as well as fees and dues you will owe to the broker who sponsors you as a licensed agent. Always weigh your options and make choices best suited for your business and as a real estate investor.
In conclusion, ultimately it’s your decision. It’s not a binary decision as in a yes or no. The good news is a real estate license is not required for you to become a successful real estate investor. And it’s not a hindrance or detriment if you do have one. You have options, and it’s completely up to you as an investor how you want to run, manage and create your real estate investing business.
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About the Author
Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies, which focus on residential real estate wholesaling, rental property management and self-storage leasing. He also is a licensed real estate agent in the state of Texas. He enjoys sharing his ongoing personal experiences, perspectives and learnings from his start as a part-time or “weekend investor” and full-time corporate professional through his ultimate transition to a full-time real estate investor and business owner. You can listen to his podcasts at http://www.blogtalkradio.com/kevinguz.