You may have heard this before: “Real estate investing sounds great, but don’t you have to get a license to start investing?”
To simply answer the question: Nope, you DO NOT have to get your real estate license in order to invest in, wholesale, or flip real estate. In fact, for my first three years of real estate investing, I wasn’t licensed, and I was able to generate well over a million dollars of profit.
So, believe me when I say: it is not necessary to get your real estate license to begin investing.
However, I did eventually become a licensed real estate agent, which opened up additional revenue streams & opportunities in the industry.
In this article, I’ll give you my Pros & Cons of getting your real estate license as a real estate investor. These insights will help you if you’ve ever asked the question: “As A Real Estate Investor, Should I Get A Real Estate License?”
PROS of Getting Your Real Estate License As A Real Estate Investor
1. More Credibility As A Real Estate Investor
Once you become a licensed real estate agent, you establish more credibility as a real estate investor. This is because you are now recognized by your state’s bureau of real estate for taking the time and effort to study the practices, legal aspects, and finances of real estate.
You are now better equipped to handle real estate matters as opposed to (given all things equal) another investor who does not have a real estate license.
2. Earn A Buyer’s Agent Commission In Addition To Your Wholesale Fee
If you are a wholesaler who has a real estate license, then you can potentially represent your cash buyer on the purchase of property. Thus, earning a commission as a buyer’s agent. This allows you to make additional income on top of the properties you are wholesaling and flipping while almost doing the same amount of work.
Here’s an example: Let’s say you get a fixer under contract for $490,000 and a cash buyer is willing to buy it at $500,000.
You can make your normal fee of $10,000 for wholesaling the property (the difference between $500,000 & $490,000). AND, you can also make a commission by representing your cash buyer on the purchase as a licensed buyer’s agent. A normal commission as a buyer’s agent is 2.5% of the purchase price of the property.
So, instead of just making a $10,000 wholesale fee from a deal, you can now make an additional $12,250 (2.5% of $490,000 = $12,250) from representing your cash buyer as their buyer’s agent.
Not too bad, huh?
3. Earn A Listing Agent Commission On The Properties You Wholesale
As a wholesaler, you can wholesale the property to your cash buyer and then, become the listing agent once the property is renovated and ready to be re-sold on the market. A normal listing commission is 2.5% of the sales price.
Let’s say the property you wholesaled, received a buyer’s agent commission on, and you are now listing, was renovated and is being sold for $650,000.
Here’s a break down for the potential earnings you can make from this one deal:
• Wholesale Fee = $10,000
• Buying Commission = $12,250 (2.5% of the Purchase Price of $490,000)
• Listing Commission = $16,250 (2.5% of the new Sales Price of $650,000)
So, now as a wholesaler, you can make an additional $28,500 from having your real estate license on top of your $10,000 all from the same property.
4. Earn A Referral Fee For Referring Deals/Clients To Another Agent
As you progress as a real estate investor, others will begin to see you as their go-to real estate professional. There will be times when buyers and sellers come to you in order to assist them in buying or selling a home.
Helping someone buy a property or sell a property can take a lot of time away from building your real estate investing business. So, how do you maximize your earnings with a real estate license while being most efficient with your time?
One great way is by referring a client to an agent that will do a stellar job for them with their real estate needs.
It is standard to receive 25% of the agent’s commission you refer a client to once they buy or sell a property.
For example, I recently referred a seller to a phenomenal listing agent who did a fantastic job selling the property for the referred client. The real estate agent ended up selling the property at a great price, and everyone was ecstatic with the results.
This is what I like to call a “Win-Win-Win Scenario.”
It was a Win for the Seller because they sold the property at a fantastic price using my referral. It was a Win for the Agent who sold the property because they were able to get a new client handed over on silver platter. It was also a Win for me because everyone was happy with the results, and I received $4,800 for the referral fee! Not bad for a couple hours of work!
5. Get Access To The MLS
The MLS stands for the Multiple Listing Service, which is the database of all past and present properties on the market
By utilizing the MLS, you can use comparable market data to analyze your deals to see what properties will sell at, inventory levels, and much more, making you a better informed real estate investor. Getting access to the MLS is a huge advantage for any investor.
6. Work Your Way Towards A Broker License
As a real estate agent, you have to “hang” your license under a real estate broker. “Hanging” your license means you are working under this real estate broker.
The real estate broker receives a piece of your commission from every deal an agent does because they own the brokerage, have a majority of the liability if anything is to go wrong, and, usually, help mentor you to be a top-notch agent.
In California, you need the equivalent of two years full-time licensed real estate agent experience within the last five years to qualify and apply for your Broker License. By getting your real estate license, you can work towards eventually having your own brokerage, which can be another revenue stream for years to come.
CONS of Getting Your Real Estate License As A Real Estate Investor
1. Time Investment
It usually takes 4+ months to become a licensed real estate agent. You have to appropriately allocate the time needed to get your license while maintaining a successful real estate investing business.
Here’s the process for getting a real estate license in California:
You can take the classes online to apply for your real estate license. Once the classes are completed, you then submit your proof of completion to the California Bureau of Real Estate. From there, it takes about 6 weeks to receive a response from the Bureau.
If you submit all your paperwork correctly, you are now are eligible to take the state’s real estate license exam. A passing score on the exam is 70% or better.
This entire process can take 4 months, which is usually the least amount time it takes to get the license. However, the longer you take to complete the courses and submit the paperwork, the longer it will take you to get the license.
Each state has their own requirements to become a licensed real estate agent. Be sure to research the requirements for your specific state if you are interested in getting licensed.
2. Generally Have To Pay More In MLS Fees
As a real estate investor, having access to the MLS is important. It is important because you are able to look at past and current sales data, as well as, have access to a database of leads.
Now, as an unlicensed real estate agent, you can typically receive MLS access by getting “Assistant Access” or “Portal Access.”
The cost for unlicensed MLS access can be around $25 a quarter in California. However, once you become licensed, fees can jump up to $100+ per quarter. Be sure to keep these additional costs in mind when thinking about getting your real estate license.
3. Capital Investment Required
Online courses usually range around $199-$699. In California, the real estate license exam fee is about $60, and the licensing fee itself is $245.
Keep in mind that you will most likely spend $500 (or more) in order to get your real estate license. As a beginner real estate investor, these extra costs can add up. Sometimes it can make sense to get a few successful investment deals under your belt before working towards getting your real estate license. This will allow you to focus on building a successful business first without spreading yourself too thin.
4. Can Be A Distraction From Your Main Investing Business
I have seen real estate investors focus too much time on getting their license and it takes away from their real estate investing business. Be sure to allocate time effectively & efficiently in order to keep your investing business cash flowing.
If you are determined to get your license as an investor, my recommendation is to work on your business during the day and study for the real estate license in the evenings.
Additionally, once you are licensed, I have seen investors focus a lot on real estate agent activities, such as: taking listings and helping buyers, family friends, and others in their real estate purchases and sales. By focusing on too many different revenue-generating activities, sometimes the investor’s main business can slow down.
Look yourself in the mirror and ask yourself “What do I really want to do and be?” “Do I want to be a real estate investor, or a real estate agent?”
Either is completely fine, but sometimes you have to make a conscious effort & decision in order to maximize your focus, time, and effectiveness.
In my opinion, real estate investing and getting a real estate license go hand in hand, and will only make you a better investor.
Having your real estate license provides other avenues for making an income through buying commissions, selling commissions, referral fees, and this is just scratching the surface!
My first three years of investing, I did not have a license and had total focus on building my real estate investment business. That focus provided huge dividends.
Looking back, getting a real estate license could have distracted me from being a successful real estate investor if I had pursued it from the get-go.
So, if you are up to getting your license as a real estate investor, be sure you are able to allocate the appropriate time for studying, and the capital investment for courses & fees.
With that said, weigh the PROS & CONS of getting your real estate license as a real estate investor, and, most importantly, continue taking action with whatever path you choose!