I hear so many real estate investors say, “It would be such a great idea if I got my real estate license!” But I’m here to tell you the top three reasons that’s probably not a good idea.
3 Reasons Investors Should NOT Get a Real Estate License
You’re only going to save 3 percent, not 6 percent, on real estate commissions.
People who are focused on investing—serious investors like fix and flippers with the goal to flip 10 or 12 houses a year or rental investors who are trying to have 10, 20, or 50 rentals—might think they’d save so much on commissions if only they had their license. It’s not true though.
To explain, I’m just going to use a standard 6 percent commission. In a transaction, of that 6 percent, 3 percent is for the agent who represents the seller and 3 percent is for the agent who represents the buyer. So when you did your calculation for what you’re actually going to save as an investor, you only save on one side of the transaction.
You won’t even get the full 3 percent.
Let’s say you save that 3 percent. That could be a lot of money if you sell a house for $500,000. However, let’s go into when they cut that check for that 3 percent and how you’re not even going to get the full three.
The check will be automatically sent to your broker from the title company, because you have to work for a brokerage as a real estate agent. How much your broker gets is going to be determined based on the contract that you have.
Every brokerage will have a fee—that’s how they make money, how they stay in business. So you have to keep that in mind when you go out and you’re interviewing or you’re looking for a brokerage. You have to make sure you subtract that because that is going to come out of the 3 percent.
And there are all these other expenses as a real estate agent that you have to pay whether you do one deal or 25 deals in the year. You still have these expenses to stay current with your real estate license.
And for the real estate agents out there right now, please leave in the comments your fees and things like that, so that people can see that this is a reality. In every state, you are going to have a lot of fees as a real estate agent. But they do vary by region.
You have your Multiple Listing Service fee; that’s going to be a couple hundred dollars or like a thousand dollars on average a year. You actually also have professional association dues. Here in Virginia, they are so expensive—a little over $1,000.
So you have to look and see what these fees are in your state. These are all things you’ll have to subtract from that 3 percent.
You also have to carry errors and omissions insurance, so you have to pay that. You also have desk fees, your broker’s cut (as I mentioned), self-employment tax—again that 3 percent is pre-taxed commission.
And then, to keep your license current, once you become a licensed real estate agent, each state has continuing education requirements. So you have to factor in taking your continuing education, otherwise your license will go inactive.
You have to do and pay for all the things your agent would have done and paid for you.
Also, now that you are the real estate agent, all the things that your agent would normally pay for to market your house and to get it listed are your responsibility. Now you have to pay for lockboxes (the centralized ones are about $300), signs in the yard, professional photography, staging—all those expenses are now yours.
I just mention this so that you know it is not an easy, “Oh, I’m going to keep all this commission!”
Once you factor in all that, is it really worth it? This is why I tell you if your goal is to be a flipper or if your goal is to have a lot of rentals, factor in all the time that being an agent is going to take away from concentrating on your investing business.
When it comes to putting your property on the market, all of the activities that your agent would have done are now your responsibility. This includes all the administrative things to get the house on the market, get it in the MLS, stage it, do all the negotiations—there are always negotiations.
There are so many administrative tasks in real estate deals. For most agents, that’s why they have a transaction manager or a transaction coordinator to help. Because even as real estate agents we know, “Hey, I cannot spend so much time on administrative work that I am not out doing my lead generation and growing my business.”
So it’s the same thing for you as an investor if you’re tied down doing all the administrative things to get your house listed. All of these administrative tasks are taking away time from getting and finding another rehab deal. Think about that.
You could be stuck doing something that is really a $10/hour job when you really need to be focused on finding your next rehab deal that could be paying you, what, $50,000 or so?
The Bottom Line
You see how getting your real estate license in that situation, it’s not even worth it?
And then there’s so many things that come up each day in a real estate agent’s day that take away our time. Like I said, that’s why a lot of real estate agents now have assistants. We need help.
For instance, the other day for me, I have a property on the market. I got a call saying the lockbox is stuck, it’s jammed. This means whenever people visit the property, they can’t get in. So I guess I have to either pay someone to go out and switch that box out or I have to do it myself. And there’s always just these daily activities and emergencies that come up that you need to respond to.
You can see after you subtract and really factor all that in, if your goal is really to be an investor, focus on being an investor. Spend your time doing that.
And you can always negotiate. It’s better for you to negotiate with your real estate agent their fees and things like that as opposed to taking everything on yourself. Let someone else focus on selling your listing for the most money.
What do you think? Are you still considering getting your license? Why or why not?
Let me know in a comment below!