An investor doesn’t need to have a real estate license. After all, if you’re buying rental property for your own business, why bother with hanging a certificate in a broker’s office and paying monthly dues when that money could be put to better use?
Whether to get a real estate license is an age-old debate and may be something you’ve been wondering about. The answer isn’t as easy as it might seem.
We’ll discuss potential benefits of obtaining a real estate license as an investor, drawbacks to consider, and where to learn more about the licensing requirements in your state.
- There are more than 3 million active real estate licensees in the U.S., according to the Association of Real Estate License Law Officials (ARELLO).
- The benefits of a real estate license for investors include generating additional income, locating more deals, and directly accessing data on the multiple listing service (MLS).
- Obtaining a real estate license requires time and money, but compared to other professional services, the barrier to entry is relatively low.
6 benefits of getting a real estate license
While some experienced investors recommend against doing so, there are potential benefits of becoming a licensed agent.
1. Earn a commission
When you buy real estate without being licensed, you’re potentially leaving money on the table. As a rule of thumb, a real estate commission is split evenly between the seller’s agent and the buyer’s agent, who just happens to be you!
To illustrate, if you purchase a single-family rental (SFR) for $150,000 and the commission is 6%, you could earn a $4,500 commission. That extra cash could go a long way toward paying for expenses like closing costs and prepaids like a reserve account or annual insurance premium.
2. Access the MLS
While the MLS is traditionally the go-to source for people buying and selling their primary residence, it can also be a good resource for finding investment deals when you know what to look for.
A home whose price has been reduced multiple times, or that has been repeatedly taken off the market and relisted, could indicate that the seller is becoming increasingly motivated. The MLS is also a great source for accessing historical data on properties and neighborhoods and running comparables. If you have your eye on a specific area, most listing services will send you an auto-alert the minute a property hits the market.
Agents listing homes for sale on the MLS must abide by the National Association of REALTORS® (NAR) Code of Ethics and Standards of Practice, which may help investors reduce the risk of buying a problem property.
3. Learn as you earn
Working as a real estate agent with a good broker can be an excellent way to learn the ropes of the real estate industry. Brokers must supervise their agents and review all paperwork in a transaction, so you’ll gain some protection against potential legal issues that you may be unaware of.
Brokers can also be a good source for referrals to trusted tradespeople, such as heating, ventilation, and air-conditioning (HVAC) contractors, plumbers, electricians, mortgage and insurance brokers, and title companies offering investor discounts on closing costs.
4. Network with other agents
Joining an office with many agents could help you keep your deal pipeline full. Once other agents know you’re an active real estate investor, they’ll be more likely to send opportunities your way in exchange for a referral fee or a commission split.
You can network with other agents working for different real estate firms to broaden your network of investor-friendly agents. For example, you may run into other active agents at free educational events sponsored by a title company or by negotiating a deal on an investment property that another agent has listed. As the saying goes, the real estate investing business is about what you know and who you know.
5. Earn referral fees
Speaking of who you know, most people will assume that you’re interested in working with homeowners because you hold a real estate license. Although that may not be true, there are plenty of agents in the real estate business who help the general public buy and sell their homes.
Instead of saying no to the leads that fall into your lap, you could refer them out and earn a small profit when a home is purchased or sold. Many real estate offices have a form to register a referral to another agent. Once the referral paperwork is entered into the system, the broker will automatically pay you the referral fee when the transaction closes.
6. Continuing education
Once you’ve received your real estate license, you’ll be required to attend continuing education classes when renewal time rolls around.
Many companies that depend on real estate agents for their livelihood, such as escrow officers, mortgage brokers, insurance agents, appraisers, and home warranty companies, frequently sponsor free continuing education classes, often with a meal included.
In a way, it’s like getting paid to learn skills that real estate investors need, such as marketing and advertising, writing purchase and sale contracts, avoiding common mistakes, and negotiating skills to take your business to the next level.
Before you decide to get your real estate license, there are drawbacks to consider. While none of these may be deal-breakers, they are worth keeping in mind:
- Start-up costs: Getting a new real estate license requires time and money. While rules vary from state to state, you may be required to take around 120 hours of prelicensing classes and pass a test on state and federal housing laws. After receiving your new real estate license, you’ll need to activate it by finding a broker to hire you and joining the local real estate association to access the MLS.
- Dues and fees: The cost of keeping a real estate license active varies from one location to the next. Some of the recurring payments to budget for may include a desk or brokerage fee paid to your broker, broker’s share of any sales commissions earned, local real estate association fees, and annual fees paid to the NAR and the MLS.
- Continuing education: Your real estate license will need to be renewed every 1 to 2 years. Fewer hours for continuing education are typically required to renew a license, although you will have to pass course quizzes and a final exam. In addition, most states allow continuing education classes to be taken online, often for around $100. After earning your continuing education certificates, upload them to the Department of Real Estate website and pay your license renewal fee. Then, you’re good to go until the next renewal period rolls around.
- Disclose your license: The fact that you hold a real estate license must be disclosed to buyers and sellers, even when you are buying or selling for yourself, or when doing so through another agent. That could mean a seller may not want to pay you a commission or may be unwilling to negotiate if they know you’re an investor and suspect your offer may not be for the fair market value.
How to get a real estate license
The specific process of getting a real estate license varies by state. ARELLO maintains a page on its website with links to each state’s real estate regulatory agency.
Here are the general steps for getting a real estate license:
- Research the requirements for your state.
- Attend a prelicensing course or take classes online.
- Pay a fee to schedule and take the state real estate exam.
- Pass the prelicensing quizzes and final exam.
- Submit to fingerprinting, a background check, and a criminal history report.
- Pay the state real estate license fee.
- Find a broker to hire you and activate your license.
- Join the local real estate association to gain access to the MLS.
- Attend any orientation and new-hire classes that your new broker or real estate association may require.
Although it requires an investment of time and money, the barrier to entry for getting a real estate license is low compared to other professional licenses. Real estate investors may find that getting a real estate license is an excellent way to create an additional revenue stream, find more deals, and learn more about the business of real estate investing.