At some point, every creative real estate investor wonders: Should I get a real estate license? It’s a good question. Unfortunately, this topic is rarely addressed clearly to the creative investing community.
“The average real estate agent makes below the poverty level in income and rents their home.”
For example, you may hear myths about how being a licensed real estate agent restricts a creative investor’s ability to do deals. In other instances, the significant time and financial costs required to get and keep a license are not mentioned.
I hope to set the record straight, so you can answer the question for yourself.
My Bias
Although removing one’s bias makes for better authorship, it’s difficult to be completely impartial. Therefore, I’ll disclose upfront that I’m a licensed real estate agent and have been for many years. I love being licensed. I consider it a license to print money. So now you know my bias right upfront.
I’m not alone. Just about every extremely successful creative real estate investor I know is licensed. There are several reasons for this, which you’ll discover shortly.
The so-called investing experts who aren’t licensed and teach that creative investors shouldn’t get their real estate license, typically are not actively creatively investing. Instead, they are too busy working on their next infomercial or local hotel seminar.
The Restrictive Myth
A myth swirling around creative investing circles is that becoming licensed restricts your ability to do creative deals. Although it holds you to a higher standard in your business practices, in my experience having a license has not restricted any legitimate creative transactions.
Being held to a higher standard makes for good business. As we all know, hucksters don’t last–honorable business professionals do. But could there be instances when having a license restricted a creative deal? I’d like to know! Please comment at the bottom and share situations where a real estate license restricted a creative deal.
Here are the pros and cons of getting your real estate license.
PROs to Getting Your License
1. More Money: For active real estate investors, having your real estate license can be a “license to print money.” There is a ton of profit in legally collecting a commission on the sale of a real property. Although the investor community at large tends to snub their nose at real estate agents, make no mistake, there are some agents in your general area that are bringing in $1M or more per year.
Are you taking home that kind of yearly income from your real estate endeavors? Exactly.
Our studies have shown that less than 5% of properties for sale in the marketplace fit for a creative investor. What happens to the other 95%? Almost all will eventually go through a real estate agent.
Most investors don’t have the time to be a traditional listing agent or buyer representative, you certainly can refer the lead to another agent and get a portion of their commission. You can probably negotiate 25% of their 3% commission for bringing them the customer. That referral commission can translate into some serious money over time, especially if you are generating a significant number of seller leads.
In some cases, you may want to be the listing or buyer’s agent. What’s 3% of a $1,000,000 listing? $30,000. That’s a pretty good flip profit, isn’t it? And that’s the beauty of commission income–it’s a wholesaling-type transaction. You don’t need your own cash or credit to get paid a commission. So you could argue that agents were the originators of no money down real estate!
What about when one of your friends wants to buy a home? Get paid 3% for helping a friend find their dream home. It may just be some of the easiest real estate money you’ve ever made.
I’ve helped many friends buy their homes, and they trust me more than any other agent they know because they know how many homes I have bought in my lifetime. They know I have been in their shoes hundreds of times. Not only is it good money, you may be the most qualified person for the job.
Some recent, significant changes have made it much more difficult for creative real estate investors to make huge profits in short sales. Although the opportunities are still there, the vast majority of short sale approvals do not create enough room to do a back-to-back flip and still create any profits.
The only real money left on the table for most of short sale deals are the commissions. Now that the banks no longer approve “short sale negotiation” fees on the HUD–even if there’s just a few thousand dollars left on the table, without a license it’s extremely difficult to collect that money.
Those who are licensed, are cleaning up right now because there are more short sale deals available than ever before. But if you’re in the short sale game without a license, you are leaving a ton of money on the table.
As you can see, having your license exposes you to more ways to put money in your pocket. And as crazy as this may sound, I have met plenty of investors who now do a few creative deals on the side, but for the most part earn real estate agent commissions. They’re making great money, too!
2. MLS Access: When you have your license, you can get full access to the Multiple Listing Service (MLS). If you don’t already have full access to the MLS, getting it is a mandatory step to taking your real estate investing to the next level.
Non-MLS based comparable sales research, whether free, such as Zillow, or paid such as RealQuest, are a joke compared to the kind of information you can glean from the MLS. Too many beginner investors are groping in the dark, unaware of what a property will sell for because they are using free tools rather than the real thing.
It’s important to point out that as powerful and helpful as MLS access is, that alone should not be the reason to get your license. You can get access to the MLS without having to spend the huge amount of time and money to get your license. Here are some ways to do it.
You can get access through a friendly agent. In some MLS systems, you can go to an all-day class and become a non-licensed assistant of a Broker. Many of my mentees have done this. If you have a close friend or family member who is licensed, they may even give you the taboo (and perhaps against MLS policy) username and password to log into their MLS account.
In some areas across the country, much of the most important MLS data is available to the general public due to anti-trust lawsuits the Realtor Association lost and so were forced to open up their MLS monopoly.
Redfin.com gives you free access to closed MLS comps in many major metropolitan areas across America.
Note: Most properties in this country are sold through the MLS, so when selling a property, it is almost always a wise move to get the property listed. In the past, having your license meant the added benefit of listing your own deals and saving money on commissions.
With the advent of flat fee listing services, it’s no longer a big benefit because these flat fee services are so inexpensive, it may be even cheaper to list through them than to pay your broker a small fee to list it yourself. Many creative investor licensees use a flat fee listing service, since it’s cheaper than having to pay their broker his cut.
CONs to Getting Your License
1. Significant Time and Money: When it’s all said and done, the cost can be several thousand dollars. And the time commitment is going to be at least 150 hours, perhaps more.
I recently spoke with a beginner investor who has been chipping away as best he could at his pre-licensing exam preparation course for over 6 months. And it will probably take him another 6 months to complete it, pass the test, and get his license hung with a Broker. He has 5-10 hours per week to devote to real estate investing, and all of it goes to this quest to get a license.
The problem is he’s not making any money in real estate, and he’s letting a terrific investing era (right now), slip away. The advice I give (which I did myself) is to go do some deals first. Make some money. Use some of the profits from your first few deals to invest in getting your license–if you can squeeze in the massive time commitment it demands.
Make sure you stay active in real estate. The ongoing costs to remain a licensed agent are significant and, you are required to attend continuing education courses. You can choose some electives, which can be very helpful classes, but the mandatory continuing ed courses can be absolute drudgery.
Investors that ideally fit for being licensed are those who are full-time investors. In fact, if you are a successful part-time investor, making the leap to full time will be much easier if you are licensed because it can bring in good money consistently while you’re waiting for bigger deals to close.
2. Not Educational: One of the biggest reasons beginners use to justify why they “need” to get their license is for the education. The person I mentioned above fits into that category. Sadly, the course you take to pass the exam to get your license will teach you almost nothing about making money in real estate.
The average real estate agent in this country makes below the poverty level and rents a home. They weren’t taught to make money when they got their license, they were taught how to answer the questions on the exam: What’s a leasehold estate? Who exercises eminent domain? What is functional obsolescence?
Who cares! Memorizing the definitions of terms will not help you put any money in your pocket in the real world of real estate investing. Certainly, you’ll learn something new while going through the process of getting your license. The problem is, it most likely won’t help you be successful. It’ll just be head knowledge.
Perhaps the more destructive, underlying reason why some beginners dive into a 150-hour pre-licensing course is because education is within their comfort zone. They’re afraid of the real world and prefer the safe cocoon of Education-ville.
If you have no interest in making any money from the education you gather, have at it and enjoy learning about how English feudal law influenced the creation of modern day real estate practice.
But if you want to get a return on your time and educational investments, don’t view getting your license as giving you insight on how to be successful in real estate. Instead, look at it as a necessary right of passage in order to earn a commission.
I would love to hear reactions and comments on this subject. Please share below!
I was so happy to read your article. I am a real estate agent who became agent after being an investor. I left my previous job as an admin secty and am glad I did. I have been asked many times the question whether it is a conflict of interest. I flatly say no. I disclose it and then move on with doing my deal with them. I also used my commission to buy a commercial property with 5 friends. How sweet…my commission was $35,000.
That’s how it’s done, Joan. Thanks so much for sharing. Very inspiring for those who read this. A real estate license for an active creative investor is truly a license to print money.
good job Joan!
Great article Phil. I’m an investor and just recently went and got my RE license. It cost $2,200 when all was said & done & a lot of hours. One of the main reasons I did it was so I could bid on HUD houses and not have to rely on another agent who might not be available when I need to act quickly. The other reason was to be able to profit from those leads which had to sell conventional, short sales etc. I’m just getting things set up, but I’m very sure my profitability will be higher because I have many more options for exit strategies. And having the MLS available 24/7 is one awesome perk
Wonderful feedback, David. It ain’t cheap or quick to get a license but it can be well worth it. Great point about HUD home access.
Ever really suscessful investor team that I personally know has at least one agent as a team member. Access to info, access to properties without waiting on somebody to come let you in, commission back on your flip if it makes it to the MLS, etc. I know from personal experience that having your license is a HUGE benefit and has no negatives as it lends credibility to your investor biz. But, for you non-believers keep on thinking the way you do.. that just leaves more fruit for the rest of us:)
Well spoken, Anthony. I find myself saying a variation of that phrase all the time, “…keep on thinking that way then, because you are leaving more money for me…”
Awesome article! I have been debating this issue for some time. Will now look into obtaining my license.
Excellent article!
I’m about two thirds through the process of getting my license, primarily b/c of the reasons you’ve mentioned. I am lucky enough to have been able to get my 60 hours of prelicensing done over just two full-time weeks thru a local school (which also offers night/weekend classes), otherwise I never would have been able to knock that out. One thing that I wasn’t prepared for was the amount it costs to get a license and join the REALTOR’s group, which isn’t required to be an agent but has obvious significant benefits.
The actual fee for an agent’s license in Tennessee is $110.
AND
The 60 hrs was $350 (competitive rate +- 12%).
The extra book I got for the state portion (well worth it) was $28.
The exam was $55, and I’d paid for a $20 practice exam from the people who administer the exam which was worthless, it was nothing like the real exam, served only to freak me out b/c it was so much harder and I bombed it 12 hrs before my test was scheduled . . . . anyhow . . .
The “postlicensing” course (which we now have to complete before license will be issued . . go figure) will be $185 (again, competitive +-12%,)
The broker I’m signing up with is going to be a great deal with a yearly fee of only $300 (Exit Realty Diversified in Nashville, TN, best deal in town for an agent, tell them Emily Busey sent you) but all brokerages will have some sort of desk or signup fee. And yes, you have to sign up with a broker. No broker, no license.
Broker also has a training/tech fee of $35/mo; the tech/training available to me would cost me way more to get on my own, though.
To join the REALTORS association I.E. get access to MLS, is $300 to join, then $460 a year, though they will prorate that quarterly.
To actually use the MLS is $38/mo; to get a “Sentri Lock Card Lease” is $120/yr (prorated annually)
Also needed is Errors and Omissions insurance, which is available to me thru my broker for $55 to set up then $12/mo, but if you get it thru the state real estate commission its $30/mo if I remember correctly. Something like that.
Not to mention that signs from my broker are $39 each. Though I’ll be celebrating every time I pay THAT, ha!
I think I’m missing something. Add $100.
All in all, it’s much more expensive than I thought it would be going in b/c I was originally told by the school that the process was “Take the two classes ($), take the test ($ not mentioned), find a broker ($ not mentioned), take the third class ($), register with the commission ($ not mentioned.)”
But, all in all, I’m satisfied that this is the right course for me. And, possibly the best benefit of getting my agents license is that it is something people–especially my incredulous parents–seem to understand as a basic definition of “Career in Real Estate.” What a relief! 🙂
As for the meeting of agents and investors–it’s happening, for sure: the head of my local REIA is married to one of the state commissioners.
Every person who gets to the end of having finally gotten their license usually says something almost identical to what you have shared, “…All in all, it’s much more expensive than I thought it would be going in…”
It ain’t cheap.
By the way, I was with Reliant Realty over on Trousdale off of Harding for many years. Melissa Demeno is a fantastic Broker and they are super low cost. Just pay the monthly MLS dues and then a nominal $275 for each transaction and you get to keep 100% of the commission.
Problem with Exit is it is set up with a multi-level marketing component so you don’t keep 100% of your commission. Instead, you hope to get agents “underneath you” to which you could potential get a cut on all their deals. I haven’t found that to be as profitable long term as simply getting all 100% of your own deals. A bird in the hand is better than two in the bush.
Good luck with your real estate career. I made a whole lot of money in Nashville. Great place for this business.
That’s another great option, thanks!! This particular Exit office is an 80/20 start split with a lot of training, AND it’s only a couple blocks from my house so it’s particularly attractive (and the multi-level thing isn’t so bad, it’s actually just one level, kind of incidental more than anything) . . . but I may need to at least start off at a place that will get me off the ground for cheap cause I’m broke by now, ha!
I did find a much better option for “course for new affiliates” at http://itsbusinesstraining.com/ total $103. I personally wouldn’t want to have done the first 60 hours thru home study, but the new affiliate course is almost exclusively home study, so it’s apples all around for that. They’re new and the website is “being updated” but they’re registered/approved with the commission and all that (in fact that’s how I found them, off the commissions list.)
Great Job! I am a part-time real estate investor and have always wondered if I should get a real estate license. I decided not to because of the time involved. I also know that based on past experience most of the education provided through our traditional education system (as I suspect would be the case to get a real estate license), is and always has been designed much like a university degree, … to keep graduates working inside the box and boxes … simply don’t work for me. I have an advance degree … which help me in the military but until I learned how to buy and sell houses … I was always broke. Thanks Phil, Great Job!
“the Colonel”
U. S. Army, (Ret.)
This is exactly what I was thinking. I am working to put all the right pieces together now and excited to start making things happen. It can be overwhelming depending on who you listen to but if there is anything I’ve heard over and over again is that you must take action. You must make a definite plan for success if you really want to get there – TANSTAAFL & know in your heart, mind & soul what you want.
Beyond that I heard something today that should help others, it’s always better to be great at 2-3 things than OK at 5-6. Find your niche (yes you need one) and work the hell out of it.
To your success!
This article is really helpful to me even though I already received my RE license. I always wanted to invest in RE and knew that a license was not necessary and was never interested in working as an agent under a broker. However, after earning my MBA I found that I had a lot of time on my hands that was usually used for studying. Well, three miles from my house is an elite Century 21 broker who is in his 80s and still teaches the classes himself, so I went to fill my time and to add to my credibility as an investor when I attend my local investor meetings (and to get access to the MLS, I thought).
The broker was kind enough to hook me up with an agent who quickly and generously gives me anything from the MLS that I ask for but I really would like direct access of my own. That being said I will start with RedFin. If you know of any other sources, please share them with me. Thanks again for a great article.
If you don’t mind, I forgot to ask a couple questions.
1. Do you know who offers the all-day class where I can get access to the MLS?
2. What exactly is Redfin Closed Comps?
Thank you.
Hi Gigi, good question, did you find out “who offers the all-day class” to get access to the MSL?
Great article and, while I agree with it, getting my license was a mistake. What a coincidence because I decided just last night to lose my license. I admit that I got licensed for the sole reason of getting MLS access. I never even attempted to make a dime in commissions.
I naively believed that if I just didn’t do anything illegal and I disclosed that I was licensed, all would be well. NOT!
A while back my broker caught wind that I was doing a subject-2 deal and she got hot and bothered over it. I asked why did she have a problem with it? She obviously was not at all familiar with this type deal, but she said that it “appeared” to be unethical and that if I got sued, she would also be sucked into the suit.
I currently have a house for sale by owner (not in MLS). A buyer calls and she views the house, loves it, and we agree on price over the phone. But she says in the meantime she is waiting on a counter-offer on another house she had found previously. Last night I get a call from her agent asking me to pay her a commission! I said what for? She says she will do all the paperwork and monitor the inspection, ya da ya da ya da. Ummm…no, I’m not paying someone I’ve never even seen before thousands to do paperwork that I would rather do myself anyway. I’ve yet to hear back from that buyer. Agent said she will call buyer to see if she will pay a partial commission which I know she won’t.
That right there is a problem that I have with realtors. I understand that they have to make a living, but that almighty commission check trumps the best interests of everything and everybody else. This agent doesn’t care that her buyer will lose a house that she loves. If I never hear from that buyer again, then she apparently has more loyalty towards her agent than the agent has for her. And doesn’t even know it.
Oh, and also, when I was talking to the agent, she just couldn’t wrap her mind around a sub2 deal. How can you sell this house if you don’t own it she kept asking? Trying to simplify things, I stupidly asked her—well, are you familiar with assignments of contracts—no, she’d never heard of that. Even a vague working knowledge of real estate law would tell her that a contract gives you equitable interest in the house allowing you to do all sorts of transactions without ever actually getting on title. And title companies would not do these deals if they weren’t legal!!!
There are a whole lot of realtors out there who are starving to death. They only want to work inside their little boxes of plain vanilla transactions. A confused mind says no, and theirs say no to making a whole lot more money than they make.
Yep, I’ll be chunking my license TODAY.
You may not be getting any use out of your license yet, but you have already come this far so you may not want to “throw out the baby with the bath water.” Hanging your license with the right, investor-friendly Broker is essential. I have always hung my license with Broker’s who are creative investors themselves. It sounds like your Broker isn’t. Switching Brokers is very simple and not expensive.
Also, just because you ran into a weasel-like real estate agent that tried to slip in and get you to pay them a Buyer’s Representation commission that you didn’t agree to pay at the time you began negotiations with the Buyer who also didn’t understand the value of buying a property Subject To, that shouldn’t necessarily motivate you to dump your license either. Think of it this way. There are good people and bad people out there. Good preachers and bad preachers.. Just because some televangelist turns out to be a scam artist doesn’t mean that every good pastor out there should throw in their towel because of some bad apples in the pastoring world. Instead, you can be a force for good in a sea of bad.
I encourage you to reconsider before throwing the baby out with the bath water.
Great feedback on both sides of this issue. Clearly benefits versus costs of getting licensed goes to the heart of the matter, and the right decision varies by person. Most of my business is in cheaper houses, and I have no problem getting MLS access, so I don’t find it worthwhile to be licensed. If you look at more higher priced stuff, have lots of connections that might want you to help them buy/sell houses, don’t mind listing and/or showing houses, etc., it could be more useful. I have a friend that is licensed for sole purpose of access and commissions on his own activity flipping houses. He tried for a couple of years acting as an agent, too, and quit doing it. Said it was way too much work, and not enough income – he does much better flipping. Also, I have seen a lot of what Peggy said – too many agents named Ron – as in moreRons is not a good thing. Trying to squeeze themselves into deals they had no business being in, because they want a payday – not willing to let their “potential buyer” buy a house that isn’t listed on MLS, because they won’t get paid – even going so far as to tell lies and put down anyone selling a house that won’t get them paid. I have seen agents kill perfectly good deals because they can’t think outside their little set parameters. Never had a desire to become an agent.
Clearly Phil’s experience is opposite that. If you are active, connect with a lot of people, deal in higher price ranges (where the commissions add up to a lot more), I can see where having a license has a lot of upside.
Personally, I think R.E. agents are just like main stream life – 80% of the people make 20% of the income, and 20% of the people make 80% of the income – question is, can you get yourself on the right side of the 80/20 formula??? BTW – if you don’t know and pay attention to the 80/20 rule, I think it is called Pareto’s Law?, then you are almost certainly on the wrong side of the formula… 80% of what we do gets 20% of our results, and 20% of what we do gets 80% of our results – figure out and work with this formula (do more of the stuff that gets the results, and less of the stuff that doesn’t), and you will quickly be miles ahead of most people!
Best wishes,
Chris in FL
Great point about ultra low price point deals. 3% of $20,000 is only $600. Whereas if you can flip that $20,000 deal to a cash buyer for $30,000, that’s $10,000 in profit. Thanks for sharing.
Hi Phil,
Can you give me the names for one day classes that will allow me MLS access?
Thank you.
The MLS is area specific. The local boards of Realtors own the local MLS for each area. So you would have to (1) Determine the website of the MLS for your region and then, (2) Call them and ask them if they hold classes to allow non-licensed assistants to get MLS access.
Each MLS is different and some MLSs don’t allow it while others do.
Which class/course via on-line does anyone recommend in order to obtain my Real Estate license in California? Just like the article mentioned, I’m just looking for a “right of passage in order to earn a commission,” any suggestions?
Thank you. 🙂
I have been adding the expression: as “TRANSACTION BROKER” to my Multiple-Listing agreements, to disavow assumption of any FIDUCIARY condition. Who thinks this is changeable, and why?
Point 2, I do not employ the use of the “PRIVACY-REQUEST” form, inasmuch as I deem it to be an instrument of antitrust, in that it denies the seller access to all the other brokers on a given MLS after the listing expires. Who disagree and why?