As an investor, you always have your eye on how you can make a greater profit. You look for the next best deal everywhere. And you put in all the work you can yourself to help you save money. After all, money saved is money earned, especially in your career! If you get your real estate license right now, would it really save you cash in the long run?"
Which is why that 6% in realtor fees you have to pay every time you sell one of your beautiful flips or rentals rankles you. After all, 6% of $300,000 is $18,000. And 6% of $400,000 is $24,000! That is a lot of money to just leave on the table, so to speak. So you start to think, “What if I recouped all that cash? Why don’t I just get my realtors license and do the entire process myself? It can’t be that hard, can it?”
Or can it?
If you get your real estate license right now, would it really save you cash in the long run?
Not everything is as simple as it seems.
You will definitely gain some advantages as a real estate investor if you get your realtor's license. You will save some money. And you will have access to a few exclusive listings. Let’s take a closer look at these pros to hold your realtors license.
“I will save thousands and thousands of dollars! What’s not to love about that?” But how much money will you really save?
The cold hard truth is, that you won’t save all 6% of the real estate commission. Let’s break down the numbers a little bit more.
First, the 6% commission gets split between the listing agent and the buyer’s agent. So, you would get 3% and the other agent (there is almost always another agent!) would get the other 3%. That’s just how real estate works.
“Okay, okay, so I would only save 3% of the sale price. Still, that’s not bad at all. That’s the price of a new kitchen renovation or the hand-scraped hardwood floors I want to put into the house!”
I hate to break it to you, but you won’t actually get to keep your entire 3% either. To practice as a realtor, you must work under a broker. Basically, a broker takes on legal responsibility for you and provides you with some (or all) of the legal forms that you need so that your sales contracts are valid. Sometimes a broker provides you with an office or at least a desk. Some brokers even provide help such as marketing, an assistant to do the back-end paperwork, leads, a CRM, etc.
However often the broker doesn’t provide any of that. They allow you to work, and for the privilege of sponsoring your license, they charge realtors up to half of your commission! Sometimes they get a better split, such as 40/60 (in your favor) or even 30/70. But brokers save these splits for the high-performing realtors who have already proven themselves. This means, on average, you really only make (or save) $4,500 on that $300,000 sale.
Not a bad chunk of change, but it certainly isn’t the full 6% commission.
On top of your broker’s fees, though, you also have to pay to take the classes and the test to become a real estate agent. Then every year you have to pay for continuing education classes. And on top of all of that, you have to pay to become licensed every four years in states like California. (In some other states its you have to get relicensed more frequently.)
When you hold your own realtor’s license you do have access to the local MLS (Multiple Listing Service). There are some exclusive listings on the MLS still. But investors can also find local listings on free sites such as Zillow and local hubs, such as scouting San Diego homes for sale on Luxury SoCal Realty.
Plus, when you hire a realtor you get access to MLS through them. A good realtor not only scours MLS for you, they also set up automated alerts so you get emailed when new properties fitting your criteria come onto the market.
Yes, your realtor’s license will let you save a little money and will give you access to some listings that are exclusive to MLS.
But getting your license as a real estate investor comes with its share of downsides, too.
You can’t just go out, pay some money, and get your real estate license in the same afternoon. You have to put in hours and hours of studying first. California requires you to put in 135 hours of coursework before you can become a realtor. And in states like Texas, you have to put in upwards of 180 hours!
Then you have to sit for the exam. And only just over half of everyone who takes the exam passes on the first try. This means there is a very good chance you will have to retake the exam yourself to get your license.
And once you have your license, you still have to stay on top of all of the continuing education!
Yes, a broker must take you on in order for you to be able to legally practice real estate. And brokers want experienced agents who will bring in the most money.
So how do you get taken on by a broker when you have no track record? You have to find a small brokerage, one that is trying to expand exponentially, or one that is willing to take on a new realtor for a very big cut of the commission.
This means you won’t earn much money, but you will earn experience. Later, you can ask for a bigger cut of the commission or switch to a different brokerage.
As a realtor, you have to do all your own marketing! Most brokerages won’t do your marketing for you. And if you want to get a house sold, you have to put yourself and your listing out there and make it happen!
How is this different from when you list your flip with a realtor? Well, if you find a good realtor to work with they will do all of the marketing for you! And in this market, selling a house takes marketing. A good realtor puts in countless hours making videos for ads, throwing open houses, creating the perfect Facebook ads (which are surprisingly hard to create if you actually want someone to take action on them), creating pamphlets, calling up other realtors who might have a client who wants a house just like the one you are selling – you get the idea.
It takes 60 hours of marketing to sell the average house right now at market value. If you want to slash your prices it is much easier to sell a home. But you want to make as much money as possible from your investments.
You could always hire a discount realtor of course. There are always realtors willing to discount their commission in order to land more clients. It might seem like a win-win for you both. However, in order to get enough revenue these realtors have to take on tons of clients. So many clients that many of the people they work with get lost in the sea of other names and numbers.
This means that discount real estate agents sometimes put in as little work as possible to get your house sold for at least an average price so that they can move on to the next commission ASAP since they have to make up their discounts with volume.
Licensed realtors have to legally disclose to sellers that they hold a license, whenever they make an offer on a property.
That sends up a red flag to some sellers, who worry you're trying to score a deal off of them. Which, as an investor, you should be.
But it can make them wary to work with you, and either spook sellers or encourage them to demand a higher sales price out of principle.
If you love flipping houses, and you just want to keep flipping houses, then getting your real estate license might not be the best option for you. It is going to be a lot of time and effort that you have put invest for very little fiscal savings.
But, if you want to practice real estate in between flipping houses, or while you flip houses so that you can earn some extra revenue (and you are willing to put in the time and the effort each of your clients will need!), then you just might want to get your license after all! Your decision just depends on how much return you think you will get on your investment of time and money to become a realtor and to take care of your clients.
If you do decide to get your realtor's license, make sure time to learn how to market properties from a high-performing realtor. (You will make a lot more money this way.) Since most brokerages won’t provide any training or coaching, look into getting your own real estate coach so that you can fast-track your success.
Also, be sure to invest some time in learning blog content marketing as a real estate agent. Remember, that’s the job: to market and sell properties. Marketing is how you make your money!
As a real estate investor, you do have some innate advantages. You probably already have a network of lenders you can refer clients to, both for conventional loans and investment property loans.
You also probably have a network of other investors, which could serve as a niche client base for you.
Finally, getting your real estate license can also help you earn some extra money on the side as you scale up your real estate investments. Which, let’s be honest, can take some time!
If real estate is a passion for you, you can create efficiencies by earning money from it through multiple channels. You get to make your own schedule and maintain your freedom and flexibility.
And at the end of the day, you retain a lot more control over your income than someone who works a standard nine-to-five desk job.
Have you considered getting your real estate license as an investor? Why or why not?