To License or Not to License?

General Real Estate Investing
1

That is the question.

I have been debating for sometime as to whether or not it benefits me most as a potential investor and wanna be landlord to get my real estate license or not. I have passed my principles exam and am reluctant to take the state exam.

Positives: Being able to list and receive commissions for transactions

Negative: Cost and disclosure, held to a higher legal standard.

Do most investors, developers etc shy away from being licensed? What are the pros and cons?

All feedback appreciated. Thank you!

2

I’ve got my license couple days ago, in my ideas i think it’s somewhat beneficial, at least i can be in the office and catch the deals before they even get on MLS listings, or be lucky to get an owner with upcoming listings.

Negative side, is disclosure in writing when buying & selling homes for investment properties. I give it a shot, i always can cancel my license. As i go along i’ll put some more ideas on the board

3

There are a 1000 + posts concerning this topic. Feel free to do a search and read up on it for the next month or so.

As to a benefit or not, it really depends on your investing strategy. Some styles work with being an agent, some don’t.

I’d review your state’s laws carefully if you’re planning on being a licensed landlord, as it is a fact that as a RE agent, you are held to a higher legal standard than a non-licensed individual.

Your positives to being an agent aren’t at all positives. Being able to list - list what? Your properties? If you are going to be renting, then you’re not listing to sell. When you decide to sell, being able to list your own property is rarely beneficial, from my experience. As an agent, you have to disclose that you own the property and many potential buyers shy away for that simple disclosure (amazing how it’s no concern that a FSBO is owned by the owner, but a listed property that is owned by the agent seems to scare them).
As to receiving commissions, again on what, your own listings/buys? As a new agent, most likely you’ll be on a 50/50 commission split. In most areas, the total commission is split between the listing agency and the buying agency, so on a 6% commission, each company gets 3%. As an agent, you get to split that 3% with your company. In other words, you get 1.5% of a sell as commission, plus you have to figure in taxes, insurance, advertising, etc. as well. If you’re lucky, you get 1% actual $$$ out of the deal. If one percent is going to make or break the deal, then it’s not a deal.

Just my thoughts.

Raj

4

Hey folks,

Thank you for your input. Raj you hit some key points that I have considered. Although 1% can mean $10 to $20k, it is not a make or break.

I guess it depends on where you want to go with your business. I have considered getting licensed, so that I could one day be the broker and have agents work under me. This could also interefe with investment strategies. However, it is another business model.

My focus would be primarily commercial property. Now I rarely see commercial property listed by owner, but I could have another agent list for me and split the commission with them.

I would imagine that I am not just buying and holding all of my properties, so a couple properties a year could add up to an additional $50k or more.

I guess it boils down to 2 things: 1) Where do I want to take my business? 2) What do the BIG players do?

I want to follow success and would like to know why this is or is not a good strategy. I am weighing all the pros and cons, to this point I see a lot less liability by staying “unprofessional.”

Thanks again. I wish you the best in success!

5

1% can be $10-20K. Yes it can on $1-2M deals, but if you’re playing in that ballpark, $10-20K is a decent refrigerator for the property (in other words, chump change).

In order to determine if being licensed is going to be a help or a hinderence to you, you first need to determine, very clearly, exactly what you want to do.

Ultimately becoming a broker and having agents work for you is a good business goal. However, that has nothing to do with real estate investing. That is a different business altogether and it will be hard to try to work 2 businesses and be successful at them both at the same time.

Once you have a streamlined plan of what you want to do, then you can start determining whether or not it’s going to be a benefit for you to become licensed.

Raj

6

What if you wanna just Filp for now, would being licensed be an advantage or disadvantage. Or it wouldnt really matter.

7

I still don’t know. I have heard differing opinions. After this post, I just heard of a successful investor who does have his license and has a borkerage. He is at the stage where a manager handles most of the brokerage daily responsibilities, so it takes modest amounts of his time. Then he can focus more energy on his investments. Yes, it would be difficult to do both at the same time, I agree, it’s like putting the cart before the horse. Which comes first?

And as I am developing my business strategies, I am finding that it is possible to do both given the proper split and motivation. You can have cake and eat it too. You simply first have to mix the ingredients, bake it etc…

“$10-20K is a decent refrigerator for the property (in other words, chump change).” Actually, it’s more like all new appliances for a 10-20 unit apartment complex which could result in an increase of 5% of rents or reduction in maintenance which could then increase your cap rate considerably which then increases your property value dramatically providing a greater return on your initial investment.

Not looking for somebody to shoot holes in the questions. Looking for sound advice from people who may have something constructive to formulate my decisions upon. Or may have experience one way or another. For example, I have not found a need for it in my case, because I buy foreclosures and flip. Or I have found a need because of my particular strategy…this would be very helpful.

I have heard that having your license can establish more credibility, as long as when working with a realtor on an investment that you establish a non-competition relationship. Also regarding “higher legal standards and more liability” legally you are held accountable regardless, right? So that shouldn’t matter anyway, as well as if you are doing business ethically it should hold true then too.

I wouldn’t have to FSBO and disclose I am a REALTOR, I could list with a REALTOR friend, correct?

As a landlord, if you held the property in an LLC, then isn’t the LLC the landlord and not necessarily the individually licensed agent?

I am still on the fence on this one, but as I learn more, I am thinking maybe it isn’t as bad as an idea as I initially thought.