I write a lot about why real estate investors should become real estate agents to get more deals and save money on commissions. Being a real estate agent has given me a huge advantage over other investors because I can pay more for properties thanks to the commissions I save. I also can find properties, view them and write offers much faster than non-investors, which is another huge advantage. I get many questions from investors about when they should get their real estate license. Should it be the first thing they do, should they start investing first, and how many deals do they need to be doing to make becoming a real estate agent worth it? There is no right answer to this question, but I believe there are some milestones that investors should reach, before they become a real estate agent.
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Why is being a real estate agent such an advantage for real estate investors?
I have been a real estate agent for about 15 years. I am also a Realtor, which means I belong to the board of Realtors, have an ethics code to abide by and some other perks. You can read all about what it means to be a Realtor, versus just an agent here. When I flip houses or buy rental properties I have a huge advantage because I am a real estate agent.
- I save a commission when I buy a home. On a $100,000 purchase I might save $2,000 to $3,000. When I sell a home, I also save a commission because I list the house myself. That would save me another $3,600 to $5,400 if I sold the house for $180,000. I get to keep 100 percent of my commissions, but most agents would not be in that same boat and would have to pay their broker a portion.
- I can see homes listed faster: I have access to MLS, which allows me to see homes that are for sale faster than the general public. Many of the big sites like Zillow are delayed when they show houses for sale. I can search all the new listings in my area since the last time I searched using hot sheets.
- I can view homes faster: I am my own agent so I can set up showings and see houses without waiting for another agent to make time for me.
- I can make offers faster: As soon as I see a home, I usually know if I will make an offer or not. I can text my assistant and have him write up an offer before I even get back to the office.
- I can pay more for houses than other investors: Since I save money on the commissions I can pay more for a house and still make the same amount of money as another investor who is not an agent.
- If I am marketing for off market properties, not only can I buy a home, but I can list it as well.
What are the disadvantages of being an agent and real estate investor?
There are many real estate investors who say you should not get your license because it limits what you can do as an investor. Being an agent can limit what you can buy and how you buy homes.
- Real estate agents have to follow specific disclosure requirements: When a real estate agent buys a home, they have to disclose that they are an agent. They also have to disclose that they are an agent if they are marketing to buy homes with letters, signs or other materials.
- Real estate agents have to be careful when buying off market: When I buy a home that is not listed, I have to tell the seller I am an agent. I also have them sign a disclosure that states I may be buying the home below market value and making a profit on the home.
- Real estate agents may have a conflict of interest: If you sell many homes as an agent, you may be competing with your own clients when you buy investment properties. This could be a conflict of interest if you want to buy the same home one of your clients wants to buy.
None of these disadvantages bother me, but it may bother some people. I am fine disclosing that I am an agent because I think it gives me credibility. It shows that I am regulated and people have a governing body that they can formally complain to, if I do something shady. I am fine telling people I am buying a house below market because I explain what my goals are, and the sellers will not be paying a commission or marketing the home. It makes perfect sense that off market homes are bought below market value. I do not work with many investors as an agent. The investors I work with know I flip houses and buy rentals. I still send them deals once in a while that I do not want or cannot buy. While these restrictions may bother some investors, I have no problem with them.
How much does it cost to become a real estate agent?
It is not cheap to bean active real estate agent. The process is different in every state, but here is an idea of what the costs may be:
- Take education classes: $200 to $1,000
- Take exam, background check, etc. $100 to $200
- Get E and O insurance: $200 to $500
- Join MLS: $200 to $2,000
- Join boards: $100 to $500
Total initial costs: $800 to $4,200
- Hang license with a broker: $0 to $500 + (varies greatly based on number of deals and broker)
- E and O insurance: $200 to $500
- MLS: $200 to $2,000
- Board dues: $100 to $500
- Continuing education $50 to $200
Ongoing yearly costs: $550 to $5,000 plus
It is not cheap to become an agent or stay active as an agent. Every state has different costs, and you may be able to avoid becoming a Realtor based on how your MLS works, but it will still be expensive. It also takes time to complete the educational requirements and pass the test.
When should real estate investors become real estate agents?
I do not think the first thing a potential real estate investor should do is get their real estate license, unless they also want to sell houses as an agent. If you are strictly using your license to help with real estate investing, invest in some houses first. You need to buy a rental or a flip to make sure you want to keep being an investor. It is a big commitment to get a license, and although it is very beneficial, it is not necessary to do deals.
Once you have done a deal or two, know you want to continue to be an investor, then think about getting your license. Not only does it take money to be an agent, but it takes time. If you are using all your time to become an agent, you may be missing out on developing your investor business. In the end, I think an investor needs to be doing at least one deal a year to make having a license worth it. If you are doing more than one deal a year, having a license will really start to make you more money.
If you want to be an agent that sells houses and make that your career, ignore everything I just said. If you are an active real estate investor, having a real estate a license will make you much more money. However, it may not be the right choice for all investors, and probably should not be the first thing a real estate investor does. Think about your situation, how much investing you do and if getting a license is the right decision.