Ive been wholesaling properties for about 3 years now and recently been thinking about becoming a realtor. I plan on not doing wholesaling to much longer and focus on rentals and flips, using my license to sell my flips as well. Could someone point out the pro’s and con’s of becoming a realtor in my situation?
You can use the search funtion at the top of your web page for this topic. Many people have given their opinions on this. I can see both sides of the situation. If you become a Realtor, you can split the commission when buying & selling property. The flip side is you have to fully disclose you are a Realtor. That means if you’re trying to lowball for a purchase, you’ll still have to give your professional opinion of what you think the property is worth (even though you as an investor will be trying to get it at a huge discount).
The reason i ask is because i don’t have much money to invest yet since im only 19 years old. I want to become a realtor so i can make commission without putting down my money in a down payment. In this case would it be better to just be a realtor for a few years till i have enough money to invest?
You’ve been doing wholesaling for 3 yrs. and have no money to invest?? Are you doing it full time or part time? How will becoming a Realtor help you? At 19 yrs. old, you shouldn’t have many bills. I don’t know what your experience level is with flip/rentals. But I suggest you use that teenage energy and work your butt off to raise money and build credit. Learning how to manage cashflow is a must. I suggest you read the post by fdjake. I think the title was something like " Advice for Newbies but only 1 out of 100 will follow it." It’s in the Carleton Sheets forum. Good luck.
I do have money to invest but i dont have experience in anything but wholesaling, not flips or rentals. I want to get into the market as a realtor because people are always going to buy and sell homes but as of now i dont want to jump into a flip if the market is going to keep going down. I live in Miami by the way, one of the worst market in the country. I want to learn the ropes through being a realtor and then be ready to invest later on when real estate gets more stable. My credit score is a 700 and i have no debt :biggrin.
I can see where you wouldn’t want to flip right now. I buy and hold and will acquire more in this market. It’s a good opportunity for me. Becoming a Realtor may give you some experience with the market, but it is definitely not a necessity for successful investing. You can still educate yourself and take action flipping or renting without becoming a Realtor. You should also realize that there have been plenty of people who go their license because they saw people on TV making tons of money. Many Realtors hold other full time jobs because being a Realtor isn’t paying the bills for them.
Your credit score will come up over time as long as you’re responsible with your credit and pick up a couple extra accounts here and there. If you pay off a credit card, don’t close it. Having an older trade line on your credit will help your score as you get older.
Pros:
- You get MLS Access
- You can talk to other agents at same level, they will not perceive you as an investor till you tell them so
- You can save on commission if you do your own deals
- You can get paid without putting your name on the deed or legal paperwork (other than the contract)
- You can become a broker in the future (Texas requires you to be an agent for 2 years first)
Cons:
- Lots of fees to pay
- If you are not good at marketing and finding deals, having a license won’t help. As an agent you find your own deals
- You are held at higher regard, but if you disclose in writing and have the right paperwork as an investor, you should be ok
Becoming an agent (a Realtor and a RE agent aren’t the same) will not in any way, shape or form help you “learn” the business of being a RE investor. They are two different things. In fact, in my opinion, it will severely hinder your ability to learn RE investing, as agents are taught wholly “in the box” thinking. From my experience, agents who “become” investors don’t do very well as investors. At least not as well as people who “learned” the business as an investor FIRST.
Becoming an agent is not in any way going to help you save your money. It’s very expensive to become a Realtor and to maintain it. Agents are currently dropping like flies out of the business because they can no longer sell enough to make a living at it. It takes alot of effort to become successful. During that time, you will be LOSING money as an agent.
Furthermore, the “pros” are very few, from an investor standpoint. As to Fadi’s (no offense) list.
MLS access. Had it long before I became an agent. Having a good relationship with an agent is vital as an investor. Mine sent me a list every morning of what met my criteria and an email alert if something was particularly hot. My lag for not having MLS, about 3 seconds.
Don’t understand the “same level” thing. If an agent looks down on you because you’re an investor, they are stupid, plain and simple. A successful investor is a goldmine for an agent.
The commission you “save” is usually about 1% of a deal after everything is split up. It’s not a make or break number (if 1% breaks the deal, it’s not a deal) and it’s definitely not going to even pay your costs to be an agent unless you’re doing mega deals.
Finally, you cannot be equally successful at both. You can do both, but one will have to be primary. If investing is primary, it will make it much harder, in the beginning finding a place to work as many many agencies do not want investor/agents because it simply costs more to hire them than they bring into the company.
Raj
I disagree with Raj. I was a real estate agent first, then a broker and along the way I started buying a house a year to rent out and hold. I never had a formal plan to be an investor, it just started to make sense.
If you are good you can make a very good living. It is true that 80% of Realtors don’t do that well. Many have spouses so they sell real estate mostly for the social benefits and to supplement the family income.
20% of Realtors in any office sell 80% of the houses. You can be that 20% if you work hard, and smart. It will be a terrific education. Also, if the market is slow, take continuing education courses, you will learn a lot and it gives you great credibility in the marketplace.
Don’t get hung up in all the time wasting social events that some Realtors indulge in. My rule of thumb was, “If you can sign a contract I will spend time with you.”
Good luck and let us know how it goes.
Furnishedowner
Since I became a Realtor (approximately 1 month ago) I started accessing the MLS. One thing is to get listings from an agent. The other thing is having full access and do your own searches. What I am finding is that no one will spend the time I will to find good deals in the MLS. It is too soon to say if the cost will be worth. However from what I have experienced this past month it seems it is… :O)
Actually you can make quite a bit of money with commissions. It all depends on the number of transactions you close per year. Some brokers offer a commission plan where you don’t have to split the commission. You can pay a monthly, fixed fee plus a fixed amount per transaction. Depending on your volume of transactions this makes sense.
And the costs to be an agent are less than $1k per year. One deal would more than pay those costs.
Having said that, some things that I don’t like about being an agent:
1 - I have to tell anyone I talk that I am an agent. And I have to do it as soon as I start discussing real estate.
2 - I can’t pay any referal fee for anyone that helps me close a deal. For example, I can’t offer $500 bonus for anyone who brings me a house I close. I feel this limits my marketing possibilities.
3 - My current broker charges me a fee for each property I rent. So far I paid zero because I don’t have any rental. However, I don’t like the idea of having to pay him everytime I rent one of my future properties. My objective is to be an agent for 2 years and then become a broker.
So I believe there are pros and cons. Each person needs to weight them and make a decision.
Have a great evening!
Thanks to everyone that has replied, been a great help.
There are always pros and cons. Not disagreeing here. Just pointing out some flaws in the pros being listed.
Furnished, you make my point, actually. That is what MOST agents who become investors do. They buy a property, rent it out. If it works, they do it again. They rarely, if ever, venture outside of the “in the box” landlord IS a RE investor. They don’t do flips, retails, wholesales, etc., etc. because THAT’s not in the box. More important is that they don’t understand the numbers. I know several that routinely pay more than they should and spend more than they should simply because they can “make” 5% on the deal, which is more than their commission.
j1dias, if you didn’t have a good agent before you became one, then having MLS is probably a big thing to you. To me, it wasn’t because my agent sent me everything that I needed from the MLS. A good agent makes a difference.
As to commissions, yes, you can make good money from commissions. That isn’t the issue. What I was referring to is the commissions that you make off of YOUR sales, properties you buy and sell for you. Most people will close enough of their own sales to warrant “saving the commission” as a pro. It will cost you more to be an agent than you save.
You “costs” to be an agent, seem very low, but that may just be your state. That includes, MLS/Realtor fee, license renewal, training, gas, company fees, biz cards, other advertising, etc.? Also, one deal to make up $1K with commissions? Maybe in your area, but definitely not in mine.
Even with monthly fee agencies, the agent, at best, will net a take home of approx. 1% of the sale. That’s after all expenses have been paid. In fact, with a fixed fee company, that take home is usually WORSE than 1% because you have to pay that fee every month whether you close a deal or not.
Personally, j1dias, your own negative that your broker charges you a fee for every rental would be enough for me not to have my license, or at least not to hang my shingle there. But again, it all depends on the volume that you do.
Raj
Raj,
That was an interesting and new idea to me about most Realtors not being investors. Yes, you are exactly right on that. I was mainly a Realtor, and buying a house a year was just a sideline. I did not worry too much either about getting the deal of the year. And I did not do flips, wholesale, etc. I just focused on finding good deals and selling them.
This forum has taught me much more about the true investor mindset. Thanks for your point of view. You communicate well and I am learning every time I sign on.
Furnishedowner
Raj - I guess I still feel better having the access myself. As I search the MLS I come up with new ideas that I wouldn’t probably have thought to ask the realtor if I was not accessing it myself. For example - just yesterday it dawned on me that I could contact people that are trying to rent now but were trying to sell few months ago. As I was browsing through the system I noticed a number of properties that were listed for sale for awhile and they are now listed for rent. It tells me that the owner got tired of waiting and decided to recover some of his costs by renting it out. And in some cases I even noticed that they have being trying to rent for few months without success. This tells me that they were not successful in selling and now they are not being successful in renting. I guess there is a good likelihood that they will be very motivated… This is only one example - I wouldn’t have thought about this if I was not accessing the system myself. In short I believe I can do a better job than any realtor because I will be doing it for myself… :O)
Raj - here is how I figure the commission. I am planning to buy properties at around 50k. The common commission here for the buyer’s agent is 3%. So I would get around $1,500 per transaction. The monthly fee I pay my broker is $59. And I will have to pay $145 transaction fee + $45 E&O per transaction. My overall annual cost to be a realtor (association fees, MLS fees, Supra key) is around $1,000. So if I buy one property per year I will get $1,500 commission and pay $1,898 in fees. With 2 transactions I would end up getting $3,000 in commissions and paying $2,088 in fees (net almost $1,000). For each additional transaction I would net an additional $1,310. If I do 10 transactions in a year I would net a little bit over $12k.
And the thing is we all know that the buyer pays the commissions. Even though it may come from the seller’s side, it is the buyer who is bringing money to the table to pay everybody. I guess my point is if I work with a realtor, he will need to be paid anyway - so you would end up paying him the $1,500 anyway. Why not get that money and invest in your own license and after the 2nd deal in the year you would come out ahead… :O)
Raj - I don’t have an answer for this one… It will not work if I have to pay him the $190 ($145 transaction fee + $45 E&O) each time I rent a unit. I am doing some research to try to find another broker that would not charge me for rentals. My backup plan is that I am planning to get my broker’s license after I have been an active agent for 2 years…
Raj - I appreciate you taking the time to share your perspective and experience. Thank you.
Have a great evening!
j1dias,
You’ve got your numbers mostly worked out and it seems a plan. You’re already ahead of probably 90% of the people with whom I’ve had this discussion.
And for everyone just tuning in, we’re not talking about the number of transactions that you have as an agent, but rather the number of transactions that you have as an agent where YOU are the buyer or seller.
That said, the question I’d pose back to you is Will you buy 2 properties a year? Will you buy 10?
As to your broker, a $59 month flat fee seems extremely cheap.
Raj
i know the business of investing - but as a real estate agent - i choose not to work with “investors” in the residential market. if it’s good enough to shop to an investor - i buy it myself - period and the only investors i work with are the ones that are in it with me on a given investment.
my investment is my business - as an agent - you’ve got to have a business plan and work it in order to be successful.
being a real estate agent is totally different from being a re investor - however - you sound like you want to get your license to enhance your investor savvy. sounds good to me.
take into account all the feedback on this thread - good stuff.
if you’ve been wholesaling and making money - why try and fix what’s not broken? i understand you want to go in a different direction - BUT this is business - unless you see the opportunity to change up your investment approach to match a growing opportunity - i say stick with what you do and what is making you money now. re read that last sentence - it’s important.
there MUST be opportunity in it. i got my license when everyone else was dropping out - and my market share in the towns i focus in has increased steadily and will continue to do so. it still is a difficult market. make sure you’ve got cash reserves to survive as an agent. if you know people INVESTORS in the business already - let them know you’re getting your license - they may jump at the opportunity to do biz with you.
if you don’t know alot of investors -----you may consider an alternative route.
My goal is to buy 2 this year and 3 next year. So I am planning to buy 5 in my first 12-15 months. So I will probably end up ahead.
If you consider that most agents never close a deal, the $59 is extremelly expensive. There is a lot of competition in this market for brokers. When I went through my training this same broker was asking $29/month and he was signing tons of new agents… Most of those agents are long gone now. they had to raise their fee to $59.
And it is my understanding that most of the highly productive agents have similar deals with their brokers. If the broker tries to get too much money they will find another broker or get a broker’s license themselves. Actually I believe this is the main reason why few agents chose to become a broker - the monthly fee is not that expensive if you are closing a lot of deals.
have a nice evening!
PS: I am still not happey with the transaction fee every time I rent - I will need to figure out what to do when I am closer to crossing that bridge… :O)