Getting a RE License for Investing?

Question

Hello!

I wanted to gather advice and general information on getting a real estate license. Do you think that it is needed/encouraged to become a real estate investor? I am curious on what you all think about becoming an agent while actively looking for investments.

Thank you!

Kenneth Reimer · Answer

@Benjamin Alesi Benjamin, I would say it depends on what you want to do. If you're interested in getting in and out of many properties quickly, then it might make more financial sense to get your license. Fees can add up if you're transacting frequently. Let's look at a very, very basic example of appreciation and the broker/agent fee. If you buy a $1,000,000 property, you'll have to achieve 6.38% in appreciation just to break even. While this isn't even close to impossible, it becomes more difficult the less time you add into the equation. Remember, time is the most important variable in real estate investing.

If you plan on buying and holding for longer periods of time, it isn't as important. Take for example, syndicators of large multifamily deals. They spend their time speaking with their investors, working as asset managers, underwriting properties, etc. If they had to put in all the work that brokers do to find the properties, know who is preparing to sell, network for off-market deals, they simply wouldn't have enough time in the day. They stick to what they do, and they hire a broker/agent to do what brokers/agents do. To say that obtaining your real estate license is crucial to become a real estate investor is misguided advice.

The real question that most people never ask is where is your time best spent? If you don't have the chops to find an activity that would yield you higher financial results than you buying and selling your deals yourself, then get your license. But if you can instead focus your time on the activities necessary to actually invest and own the deals, then don't waste your time with a license.

All in all, a strong relationship with a broker/agent will allow you to see all the deals you would have otherwise seen on MLS (if you're getting into SFR investing), plus many others, and the fees are simply underwritten into your financial analysis.

Nathan Gornto · Answer

This was one of the first questions I had when I first decided to focus on investing actively in RE.

Originally I read around and found that no, it wasn't necessary to be licensed unless you want to be more actively involved in RE as an agent. I didn't see myself in the traditional realtor role, but I decided to start the GA Pre-Licensing course for the education. What I'm trying to say is, there is a lot of valuable information/experience/connections associated with being a real estate agent that anyone investing in RE would benefit by knowing. There are many subjects that I would have never learned about, covered in great detail-so I consider it worth it. Maybe a license will help you, maybe it won't-but you can't go wrong investing in your own knowledge/skills IMO.

David Terbeek · Answer

Benjamin-  The nice part of having a license is unlimited access to the MLS.  You also have the ability to list or sell for family, friends, etc as a side job.

However, there are some disclosure concerns.  I am speaking about OH and CA may be different but here you are required to disclose that you are a licensed agent buying the property.  You can not be a straw buyer or hide your identity behind a business entity.  It also gets tricky if you are thinking about wholesaling because you have to give certain disclosure and diligence to certain parties.   This is not intended to be legal advice, you should contact an attorney and speak with the pros and cons with a local broker.

Lee S. · Answer

California has a limit to how many "wholesale" deals you can do without a license, but you can't market the property at all if unlicensed.  I've never done a wholesale deal but it's on my list of exit strategies if necessary.

Roger Wilson · Answer

Most states have a limit on how many properties you can sell (without being the personal owner, which you aren't if it is in an LLC, etc.) - without being a licensed agent.  CHECK WITH YOUR STATE!  The penalties can be harsh.... (such as here in NY)

On the other hand, it is fairly easy to get the license, and there are a LOT more advantages than disadvantages.  Just make sure that you disclose that you are a licensed agent on every contract you do!

Lee S. · Answer

@Kenneth Reimer yes there are exceptions to every rule.  By doing a 1031 you are time constrained and there are other profit factors in play (TAXES!) so it's not an apples to apples comparison to someone paying cash or having the time needed to find a great deal to start with.

Kenneth Reimer · Answer

@Lee S. I can understand where you're coming from; most people would avoid buying retail prices at all cost. However, this also depends on the situation. If you're in a 1031 exchange, you have money to place, and there isn't much product on the market, you're most likely going to settle on retail prices (especially in B or A markets that provide security) in order to avoid the tax consequences.

Lee S. · Answer

@Kenneth Reimer I wouldn't disagree with everyone's situation being different.  My point was that the cost is not significant and there are only upsides.  There are no disclosure issues in California and if you have an issue disclosing you're a licensed professional then you're a shady person to begin with.  I think it gives you credibility even though anyone that can fog a mirror and scratch together a few hundred bucks can get licensed.  I don't do commercial (yet) so I can't say you're right or wrong on that point.  However, in your previous post you mentioned needing 6% appreciation to break even on a property...only if you are a foolish investor and are buying at full price, this being just one reason not to buy at retail.

Kenneth Reimer · Answer

@Lee S. Lee, wouldn't you say that the strategy you've described is specific to your situation? If a person is looking to acquire larger multifamily deals, I think we can agree that having relationships with brokers/agents that speak to investors on a daily basis and are in front of who might be selling soon is much more important than having your license (at least in a hot market). Deals get snatched up so fast these days, you have to know someone who is working the market you're looking to invest in.

I do agree with you. Referrals are great, but are only significant if you have good relationships with a strong network. I think the last thing to keep in mind is deals that attract a lot of attention are typically double-ended by the listing broker, whether they, in accordance with the seller, are ethically picking a buyer or not. To avoid being a bridesmaid buyer, representing yourself might not be the best idea. Let me know your thoughts!

Robert Marston · Answer

@Benjamin Alesi Consider reaching out to your tax professional and asking them what your filing will look like if you get an RE license. The deductions you may be entitled to by carrying the license may negate the costs associated with obtaining it and can open doors to more deductions you have not been taking, (A Big Maybe..)

Aside from that, I think the knowledge you'll get from taking the courses and obtaining a license will help you understand markets better and will open your networking opportunities up exponentially. In California we have high sales prices, you may find that you are able to recoup your license and fee outputs in one transaction! Make sure you are having fun!! =)

Getting a RE License for Investing?

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