In this article, I'm going to help you figure out if you should get a real estate license to help you invest in rentals. It really isn't a simple yes or no answer.
I think it will be helpful for you to see all of the pros and cons of getting a license. This will help you decide if getting a real estate license is right for you.
As a frame of reference, I have had a real estate license for over 10 years.
I was an active Realtor for several years before I started buying rentals.
But, I don't work with buyers and sellers anymore.
I also don't represent myself in my own transactions when I buy a new rental. My real estate license is essentially just gathering dust.
I like having a Realtor represent me when I'm buying a new rental. I like having a partner that can help me negotiate, and to handle the paperwork.
The market is constantly changing, and I like having someone that is working in the market day in and day out, to give me their view of what's happening in the market right now.
This helps me make better offers.
I could represent myself, and earn the buyer's side commission, but I feel my agent adds enough value to the transaction that it's worth it to me, to let her earn the commission.
Why do I keep my license if I don't use it?
I have found the MLS updates faster than the 3rd party sites and also has more powerful search features.
You can also easily run comps of sold properties in the MLS. You can find a lot of this information online with a lot of digging. But, I like using the MLS because it's a lot faster and has more complete information.
I also like doing the required continuing education requirements when I renew my license every two years. I find that it helps me to keep up on changes in the law and refreshes my memory on other real estate laws that I might not think about much on a daily basis.
I like having my real estate license. I see a lot of benefits by having a license. Even if I don't use it.
But, I don't think it's right for everyone to have a real estate license. Below, I'm going to share the pros and cons of having a license, to help you decide what's right for you.
Pro's of Getting A Real Estate License
Access To Properties
One of the biggest benefits of having a license is being able to access listed properties on your own.
When you find a listing that looks interesting, you can run over and take a look at it.
You don't have to call your Realtor and figure out a time that works for both of you to view the property.
You can see a listing pop up on the MLS, and literally be at the property to see it minutes later.
Write Your Own Offers
This is a huge time saver!
It's really easy to set up an offer template, make a few adjustments to the specific property and send an offer off to the listing agent.
I have no problem making really low offers on properties.
But some Realtors are not going to be comfortable submitting multiple low offers on properties.
It is so much more convenient to do write and submit your own offers for whatever price you want.
This is really going to vary from broker to broker. Some offices have a culture where they value training and agents want to help each other.
Some brokers provides training presented by experienced agents in the office, or by national trainers that they bring to the office.
Some companies provide incredible training and have an incredible support system. But, not every office does.
Some companies don't provide much, if any, training to agents.
When you are newly licensed you are not going to know much about the intricacies of the contract, or how to negotiate a better deal. Training is very valuable.
The licensing exam really just teaches you how to stay out of trouble. You will learn some terms and concepts that you probably won't use much once you are licensed.
Probably 99% of what you will learn in the licensing class won't help you become a better investor.
You will really learn the business through extra training you will do on your own or from your experience actually investing.
Take your time to interview several brokers to find one that will help you get started.
But, make sure you find a broker that will help you figure out how to do your first couple of deals. Because most people are going to need some help when they are newly licensed.
I mentioned this earlier as one of the main reasons I have a license.
The MLS is a really powerful tool that will help you as an investor. You will be able to easily see historical data on what properties were listed for, sold for, days on the market, the type of financing buyers used, and many other data points.
You will also be able to pull rental comps to help you price your rentals.
You can also easily pull tax records to see things like how many absentee owners are in a neighborhood. This will help you determine if neighborhoods are mainly homeowners or rentals. This will help you figure out neighborhoods that might be good areas to target to buy a rental in.
There are so many incredible reports that you can easily pull when you have MLS Access.
You will get paid everytime you buy a house. That is a really great benefit! (It's kind of like getting an employee discount).
Commission rates aren't set. The buyer agent will get paid what the listing agent negotiates with the seller. You will be able to see the commission offered on a property in the MLS listing.
The commission amount can vary. In my area, it's typically between 2.5% to 3% of the sale price. But, it could be lower or higher.
Con's Of Getting A Real Estate License
Earning the commission on a deal sounds like a great deal, right?
But, figuring out how much of the 2.5% to 3% of the sales price you will actually get to keep gets a little more complicated.
The commission from the sale is actually paid to the broker, not the agent.
Your broker will take a cut and will give you the rest of it.
There may also be other fees taken out.
Most of the national brokerages like Re/Max, Keller Williams and Century 21 have a royalty fee that goes to the national office. The royalty is usually about 6% of the commision check.
That 6% is off the top before any other splits.
Some brokerages will also take out a transaction fee or other office fees in addition to their split. I've seen this fee as low as $200 and as high as $800.
The percentage of the commission that the broker keeps can vary. The more houses an agent sells, typically the better deal they will be able to negotiate with their broker.
Some of the most common splits that I have seen are 50/50, and 70/30, where the agent gets 70%. There are also brokerages where the broker charges the agent a monthly fee, and the agent keeps 100% of the commission.
Every broker has a different business model. Some won't take a percentage. Instead, they will charge a flat monthly fee and let the agent keep 100% of the commission, and some others will just charge a transaction fee for each closed sale.
You will want to ask what brokers charge, before you sign with them.
You will have to figure out how much you expect to earn in commission and do some math to figure out where you are going to keep the most amount of money.
One thing to keep in mind, is that you get what you pay for when it comes to a broker.
The brokers with the best splits typically have to cut corners somewhere.
That is usually in the training and support department. So, you will have to decide what's more important the training or the money.
There is a lot to consider when you are picking a broker. Make sure you take the time to consider everything the broker is offering.
Another con when you have a real estate license is that you have to disclose to the seller (or the buyer if selling) that you are licensed.
You have a higher standard that you are held to when you are licensed.
Exactly when and how you have to disclose varies by state.
Make sure you check your state laws, but the penalties can be severe if you don't disclose that you are licensed.
Some investors chose not to be licensed for this reason. Personally, it's never been an issue for me. I have found that sellers either do not care, or they think it's a benefit because I know how to do the paperwork.
It can be expensive to keep a real estate license active. In addition to the one-time start-up fees of paying for the class, there are several ongoing fees. Here's what you can expect to pay:
- National Association of Realtors Dues
- State Association of Realtors Dues
- Local Association of Realtors Dues
- License Renewal Fee
- Errors and Omissions Insurance
- Contract Software Fees
- MLS Fees
- Lockbox Fee
- Continuing Education
- Broker Office Fees
The amount you are going to pay is going to vary depending on where you live. A good ballpark number to use is about $3,000 a year.
Having a real estate license can make things easier for you. But, it is expensive to keep your license active.
Plus, it does require an investment in time to study for the real estate licensing exam and to time learn how to be an agent after you get your license.
My advice would be to figure out why you want to get your real estate license. Is it to earn the commission? Or to learn how to be a better investor?
If you plan on buying one $100,000 property every year, it's probably not going to actually make any money after you pay all the fees.
But, if you plan on spending $300,000 on properties every year, you should make a little bit of money.
Unless you plan on spending a lot of money to buy properties, or you want to get your license to do the job of selling real estate, I think you will probably find that you are not going to save a lot of money by having a license.
If you want to get your license because you want to learn about investing, getting a license may not be the best use of your time.
The real estate training for the exam doesn't cover much, if anything, about investing.
In my experience, most brokers don't know a lot about investing. The knowledge that you learn from them on learning how to invest, will be minimal if anything.
I would suggest that if you want to learn how to buy rental properties, that you take a course on how to invest in rental properties
You should check out my program, Rental Income for Beginners. It will show you step-by-step how to invest in rental properties. This is program will show you exactly how I invest and have built my portfolio. This is the program that I wish I had when I was getting started.
Good luck with getting your first rental property! You can totally do this!!