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The 6 Benefits of Obtaining a Real Estate License as an Investor

The necessity of holding a real estate license as an investor is a long-standing topic of debate. After all, if you're purchasing rental properties for your own business, why go through the trouble of obtaining a license, paying monthly dues, and hanging a certificate in a broker's office when that money could be better utilized elsewhere? However, the decision is not as straightforward as it may seem.

In this discussion, we will delve into the potential advantages of acquiring a real estate license as an investor, examine the drawbacks to consider, and provide guidance on where to learn more about the licensing requirements in your specific state.

Key Takeaways:

1. The U.S. boasts more than 3 million active real estate licensees, according to the Association of Real Estate License Law Officials (ARELLO).
2. The benefits of obtaining a real estate license for investors encompass generating additional income, discovering more lucrative deals, and gaining direct access to data on the multiple listing service (MLS).
3. Acquiring a real estate license demands both time and financial investment, but compared to other professional services, the barrier to entry is relatively low.

Six Benefits of Obtaining a Real Estate License

1. Earn a Commission

By becoming a licensed agent, you have the opportunity to earn a commission when purchasing real estate. Without a license, you might be leaving potential earnings on the table. As a rule of thumb, a real estate commission is typically split evenly between the seller's agent and the buyer's agent, which could be you. For instance, if you acquire a single-family rental property for $150,000 with a 6% commission, you could earn a $4,500 commission. This extra income can greatly assist in covering expenses like closing costs, reserve accounts, or annual insurance premiums.

2. Access the MLS

While the MLS has traditionally served as a primary resource for individuals buying or selling their primary residences, it can also be a valuable tool for investors. Once you know what to look for, the MLS can help you identify investment opportunities. Properties with multiple price reductions or those frequently taken off and relisted on the market may indicate increasingly motivated sellers. Additionally, the MLS provides access to historical data on properties and neighborhoods, allowing you to run comparisons. If you have a specific area of interest, most listing services offer auto-alerts that notify you the moment a property in your desired location becomes available. Furthermore, agents listing homes for sale on the MLS must adhere to the National Association of REALTORS® (NAR) Code of Ethics and Standards of Practice, which can assist investors in mitigating the risk of purchasing problematic properties.

3. Learn as You Earn

Working as a real estate agent under the guidance of a reputable broker can be an exceptional way to learn the ins and outs of the real estate industry. Brokers are responsible for supervising their agents and reviewing all transaction paperwork, providing you with valuable protection against potential legal issues that you may not be aware of. Moreover, brokers can serve as excellent sources for referrals to trusted tradespeople, including HVAC contractors, plumbers, electricians, mortgage and insurance brokers, and title companies offering discounts on closing costs specifically tailored to investors.

4. Network with Other Agents

Joining a real estate office with a diverse group of agents can help you maintain a steady flow of potential deals. Once other agents know that you're an active real estate investor, they are more likely to send opportunities your way in exchange for referral fees or commission splits. By networking with agents from different real estate firms, you can expand your network of investor-friendly professionals. For example, you might meet other active agents at free educational events sponsored by title companies or while negotiating a deal on an investment property listed by another agent. As the saying goes, success in the real estate investing business is often determined by both what you know and who you know.

5. Earn Referral Fees

Holding a real estate license opens doors to earning referral fees by redirecting leads that come your way to other agents who primarily focus on helping the general public with their home buying and selling needs. Although your interest may not lie in working with homeowners directly, there are numerous agents in the real estate business who specialize in serving that market. Instead of turning away such leads, you have the option to refer them out and earn a small profit when a home is successfully purchased or sold. Many real estate offices provide referral registration forms, and once the paperwork is entered into the system, the broker will automatically pay you the referral fee when the transaction concludes.

6. Continuing Education

Once you've obtained your real estate license, ongoing education is essential to maintain it. When it comes time for license renewal, you will be required to attend continuing education classes. Fortunately, many companies that rely on real estate agents, such as escrow officers, mortgage brokers, insurance agents, appraisers, and home warranty companies, often sponsor free continuing education classes, sometimes even providing meals. In a way, you can consider it as getting paid to acquire skills that are crucial for real estate investors, including marketing and advertising, contract writing, avoiding common mistakes, and honing negotiation skills to elevate your business to the next level.

Before deciding to pursue a real estate license, it's important to consider some drawbacks. While these factors may not be deal-breakers, they are worth keeping in mind:

• Start-up Costs: Obtaining a new real estate license requires a financial and time investment. The specific requirements can vary from state to state, but you can generally expect to complete around 120 hours of prelicensing classes and pass a test on state and federal housing laws. After obtaining your license, you'll need to activate it by finding a broker to hire you and joining the local real estate association to gain access to the MLS.

• Dues and Fees: The cost of maintaining an active real estate license varies depending on your location. Recurring payments may include desk or brokerage fees paid to your broker, a portion of sales commissions earned that goes to the broker, local real estate association fees, and annual fees paid to organizations like the National Association of REALTORS® (NAR) and the MLS.

• Continuing Education: To keep your real estate license active, you will need to renew it every 1 to 2 years. The number of hours required for continuing education is typically fewer than for the initial licensing process, but you will still need to pass course quizzes and a final exam. Fortunately, many states allow you to complete continuing education classes online, often at a cost of around $100. After obtaining your continuing education certificates, you can upload them to the Department of Real Estate website and pay the license renewal fee, ensuring you're ready for the next renewal period.

• License Disclosure: It is mandatory to disclose that you hold a real estate license to both buyers and sellers, even when you are conducting transactions for yourself or through another agent. This means that sellers may be reluctant to pay you a commission or negotiate if they know you're an investor and suspect that your offer may not align with fair market value.

How to Obtain a Real Estate License?

The process of obtaining a real estate license varies from state to state. To explore the specific requirements for your state, you can refer to the website of the Association of Real Estate License Law Officials (ARELLO), which provides links to each state's real estate regulatory agency. However, here are the general steps involved:

1. Research the Requirements: Familiarize yourself with the licensing requirements specific to your state.
2. Attend Prelicensing Course: Enroll in a prelicensing course, either in-person or online.
3. Schedule and Take the State Exam: Pay the required fee to schedule and take the state real estate exam.
4. Pass Exams: Successfully complete the prelicensing quizzes and final exam.
5. Background Check and Fingerprinting: Undergo fingerprinting, a background check, and provide a criminal history report.
6. Pay License Fee: Submit the necessary fee for your state real estate license.
7. Find a Broker and Activate License: Seek a broker to hire you and activate your license.
8. Join Local Real Estate Association: Become a member of the local real estate association to gain access to the MLS.
9. Orientation and New-Hire Classes: Attend any orientation or new-hire classes required by your broker or real estate association.

Final Thoughts

While obtaining a real estate license requires an investment of both time and money, the barrier to entry is relatively low compared to other professional licenses. Real estate investors can benefit from holding a license by creating an additional revenue stream, accessing more opportunities, and gaining valuable knowledge about the real estate industry. By understanding the advantages and drawbacks, aspiring investors can make informed decisions regarding pursuing a real estate license and enjoy the opportunities it can offer in their investing journey.