Risks to Getting my License if Goal is to Buy Investment Prop?

Question

QUESTION: I just completed all my schooling and testing for becoming a real estate agent (~$1,200 in MN passing all the tests in the first try). I started reaching out to brokers this week to see which one would be best for me. My main and most important goal (like many of you), is to purchase rental/investment properties of my own. Last night, I met with a broker that has been in the Real Estate space over 40 years. He explained that it would be better for me to not officially get my license as it creates an "unfair advantage" legally and can put me at risk when purchasing properties from sellers (Ex. If I buy a property for $200k that is valued at $250k the seller could come back and say the deal wasn't fair as I had more knowledge as an agent). I thought it would be fine to do such a deal if I just disclosed I was an agent, but this broker explained that wasn't the case. He also said there can be conflicts of interest if I am looking for the same properties my potential clients are. Does anyone have any advice for me? My main goal is to build an investment portfolio. Am I better off taking the knowledge I learned and NOT getting my license or should I get my license and run with these risks? Are these risks he explained real? I would plan on being a part-time Minnesota agent if I do end up getting my license. Thanks!

Ralph Justiz · Answer

@Brandon Boog If I were you I'd find at least three other brokers to speak with before you make your decision. From the sounds of it that broker you spoke has some negative bias/ beliefs against investing in real estate. I am an agent and an investor and work in a brokerage that specializes in working with other investors. Our brokerage encourages us to pursue investing personally because it is such a good wealth building tool. Practice what you preach! Sure, I have to ability to see  deals before my clients do but in no way shape or form do I the ability to purchase every deal that comes across my desk. Kind of jumping on what @Rodney Harris said, there is an abundance of deals out there, there is more then enough for everyone. Figure out what works best for you and don't let the haters get you down!

Rodney Harris · Answer

So it’s obviously how you look at it.

You can look at it from a mindset of abundance and think of the upside of what you say may carry more weight as a real estate professional and etc or you can look at it from a mindset of scarcity and you can look at the cons and think your putting yourself at risk. Unfair? Life’s unfair, you’ve educated your self and become a real estate professional. How is that a negative? Your leveling your own playing field!

Sean Lambert · Answer

You just have to disclose that you're an agent when you make an offer.  To @Aaron K. 's point, if you have a client that is looking for something, you should put them first before you throw in an offer.

It does give you an advantage, but I don't think there is anything wrong with that.  I'm surprised (ok, maybe not) how many realtors don't have investment properties.

Evan Kraljic · Answer

I think the most obvious thing to do here is talk to some real estate agents in the Twin Cities who also buy investment properties to get some pointers. Jordan Moorhead and Alyssa Strom are two that I've seen on these forums.

Also I had an agent/investor help me get my first property and thought it was great for learning on the fly. I was worried about the conflict of interests initially but I don't really think that is an issue personally. My agent works with a team of investors and they found an off market deal for me that I thought was pretty solid, which is just one anecdote but still shows that the right agent will work hard for their clients.

Brock Mogensen · Answer

I don't think there is really a risk with having your license.  I'd venture to guess that broker doesn't know much about investment real estate.  It may come in handy once in a while to have your license but realistically it is not needed.  I've managed to scale to 109 units in one year without my license.  But if you can make some side money selling houses with your license it may be worth it.

Kevin Quintanilla-Toledo · Answer

@Brandon Boog I have my Real Estate license and I invest. I love it, For the most part usually everyone has a decent idea on how much their home is worth. The way I see it is if I buy a house or a property I literally get in it for practically nothing. Your commission is usually between 2.5%-3%. Usually if your buying a deal that good like the one you are referring to, the owner is probably selling it do to some distressed circumstance.  You have to disclose you are an agent and either way that is a good thing. You want to let people know what you do.  The broker I work with is amazing and most of our agents invest themselves in some way shape or form. We have live in flippers, house hackers, buy and holders etc. Find a brokerage that fits your needs, your style, and overall make sure they don’t charge all these crazy fees just for “brand recognition”

Aaron K. · Answer

Well he's partially right.  It would be a conflict of interest if you are buying properties that you find on listing appointments, don't do that, but that is a minority of the properties you'd come across that are for sale.  It might also be a conflict if you have a client looking for the same things, however this is also unlikely, it is harder than people think to get new clients and investor clients that are always looking to buy something new are very unusual for agents who are just starting out.  I would say the benefits would outweigh any potential risks.  You can also get your license and not take on clients, and just purchase for yourself.

Oliver Chapman · Answer

That broker is full of it.  As long as you stay ethical and disclose you're licensed then you shouldn't have any issues.  I've been an agent 7 years, have several agent friends who are investors and never heard of these "risks".

Sean Lambert · Answer

Advantages are you have access to listings before others might see them, or before they come on the market.  You also grow a network of investors, realtors, contractors and lenders, all of who can you use for your investing as well as connect with your clients.

Nick Gann · Answer

@Sean Lambert

Id agree fully. What kinds of advantages do you see to it?

Risks to Getting my License if Goal is to Buy Investment Prop?

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