The Pros and Cons of Getting a Real Estate License as an Investor
Walk down almost any street in the nation and you will come across dozens of billboards advertising the services of a real estate agent. According to data released by Homelight in 2019, there are at least two million active real estate agents in the US. The majority is located in California, Florida, and New York.
While it is not mandatory to obtain a real estate license to invest in real estate, having one does have benefits and some negatives.
The Licensing Requirements
Real estate licensing requirements vary in each state; overall, the average real estate agent will need to complete 60-90 hours of coursework and become familiar with local, state, and national real estate laws and practices. The coursework can be completed online at your convenience.
Depending on the state where the agent resides, they will have to renew the license every one to two years.
Obtaining a real estate license can cost anywhere from $600-$1,200. This includes the exam fees, background check, pre-licensing education material, and licensing fees. To obtain the license, one must successfully complete the pre-licensing course and pass the exam.
After getting the license, you will need to purchase a subscription to MLS. Depending on which state you reside in, you may be required to join the National Association of Realtors (NAR) for a fee. Overall, licensing fees and the cost of memberships to these organizations will cost about $1,500 a year.
Is a Real Estate License Worth It?
The question some may ask is whether it is worth getting a real estate license with all the costs and work involved.
In the past, having a real estate license was not a big deal when it came to investing, but today the real estate landscape is different. The competition is intense and cutthroat. Having a real estate license allows you to stay one step ahead of the competition and can open more doors and opportunities, leading to a reliable income.
But if you are already well-established and have deep connections in the real estate industry, then you may not need a real estate license. In fact, agents with licenses will be willing to work with you and offer you access to the MLS.
What Are the Advantages of Getting a Real Estate License?
1. Access to Market Data and Inventory in Real-Time
This allows you to make informed decisions immediately. If you do not have a real estate license, you are always dependent on another person to reveal the data to you. This may lead to many missed investing opportunities.
2. Access to the Multiple Listings Service (MLS)
The MLS has a huge inventory of active properties on the market. For years, licensed investors have used the MLS to find deals in the marketplace through various techniques.
3. Builds Credibility
Being a licensed real estate agent generally builds credibility among sellers and buyers. After all, getting a license requires effort, money, dedication, time, and commitment. Thus, an agent with a license is deemed to be dedicated, credible, and trustworthy.
4. Networking Opportunities
Once you obtain a real estate license, it will allow you to access professional industry events and meet other licensed individuals. This helps you build a solid network of acquaintances who may open more doors for you as an active investor.
5. Become Knowledgeable
To obtain and maintain the license, you will need to continually be reading and be aware of the real estate market. Like any other profession, the more knowledgeable you become about your field, the more likely it is that you can make informed decisions that can boost your investments.
As a licensed agent, you will be able to make extra money by collecting commissions. Even after paying the broker, you will net a significant amount of money even from your investment deals!
What Are the Disadvantages of Obtaining a Real Estate License?
There are pros and cons to everything. While there is no question about the advantages of a real estate license, you also need to be aware of a few disadvantages.
1. Investor and Seller Preferences
Some investors and sellers prefer to not work with real estate agents due to bad experiences with them in the past.
2. Time and Money Commitments
To get a real estate license, you will definitely need to sacrifice some time and money. First there are the costs for enrolling, purchasing the pre-licensing books, and the exam fees, which can run anywhere from $600-$1,200.
The time it takes to study and pass the exam can vary from 6-12 weeks or even longer if you have other commitments. Further, if you want access to MLS, there is an additional fee. You may have to join the NAR, which also comes with a fee.
Most people end up spending at least $1,500 a year in their pursuit for a real estate license.
Once you become a licensed agent, under state and federal laws you will need to make full disclosure to all sellers and buyers about any property that you represent. Failure to disclose can result in complaints with the state and in some cases may result in lawsuits against you.
To avoid these hassles, you will continually need to be updated on current investing laws and rules. Even leaving “cash for houses” bandit signs would require your agent and license number disclosure!
Being a licensed agent will come with more responsibilities. You will need to know all the minute facts about real estate transactions to avoid litigation.
Buyers or sellers may rely on your advice and guidance, but there is a potential for lawsuits if you make an error or omission like delaying or canceling a sale or failure to disclose a material fact. However, the same liability risk also applies to unlicensed individuals.
As long as you abide by the rules and follow the laws, the threat of litigation can be avoided.
Make the Right Choice for Your Investing Journey
For some individuals, a real estate license can significantly improve investing opportunities. Plus, the cost of a real estate license is not prohibitively expensive and should not be an obstacle. For under $1,500, you can get a license. The coursework can be done online and the number of hours you have to put in varies from 45-90.
This is not an extremely difficult task. In fact, many other professions’ exams and course duration are much longer and more difficult.
Getting a real estate license has some advantages and may help you get started as an investor. Sacrificing a thousand dollars and a few months of studying has benefits beyond just passing the exam; you will have more creative ways to get the maximum profit out of each deal, meet more people just like you, and open a few doors for investing.