You don’t need a real estate license to be a real estate investor.
But should real estate investors get a real estate license?
Getting your license can help you save a substantial amount of money on agent commissions. And it can also create new opportunities for you to make money in real estate. In fact, several of our top 50 ways to make money in real estate require a real estate license.
But there are downsides as well, including the time and expense of getting licensed.
Let’s explore the objective pros and cons of getting a real estate license as an investor. By the end of this article, you’ll know if getting a license is the right path for you. And you’ll know how to go about getting your license if you decide to.
5 Compelling Reasons Why Real Estate Investors Should Get a License
1. MLS Access
In most markets, you must be a licensed agent to have access to the MLS (Multiple Listing Service). The MLS is the platform where all listings are recorded. This data is invaluable to an investor because you can be alerted to new potential deals, price reductions, and contracts. Most MLS systems also provide useful reports to help you analyze market trends. This can help you tailor your investing strategy to ever-changing market conditions.
Without a license, your options for getting this data are limited. If you use a real estate agent, they will have full access and can provide you with the information. But the lag in time could potentially cost you deals. There are also third-party services that provide MLS data for a fee. To be fair, even licensed agents pay annual MLS fees directly to the MLS provider. But the fees for these third-party providers can be substantial, depending on your market.
2. The Right to Earn Commissions on Real Estate Deals
If you have your real estate license, you have the option to earn a commission by representing yourself in the purchase and sale of your assets.
When buying a new property, for example, you can serve as your own buyer’s agent. When the deal closes, you receive a commission check based on the purchase price. And these funds can be used to offset the cost of your acquisition.
Similarly, when selling, you can earn a commission by professionally representing your own listing.
Commissions are negotiable, but in most markets, the total commission is somewhere between 4% and 6% of the purchase price. But, you don’t get to keep all of that. The commission is split between the buyer’s agent and the seller’s agent. And each agent must split their share with their supervising broker.
Let’s consider an example:
Say you purchase a new property for $500,000 with a commission rate of 6% (this was negotiated between the seller and their agent). The total commission would be $30,000. You would likely split this evenly with the listing agent, giving you $15,000. Then, if you have an 80/20 split with your broker, you would earn $12,000. Broker splits are also negotiable; you can even find 100% commission brokerages in many markets today (but these brokerages typically charge monthly fees in lieu of commission splits). And, don’t forget: this is taxable income. You’ll need to hold aside some of this to cover your taxes due.
These commissions can add up fast, particularly if you’re doing multiple deals per year.
By the way, your license also permits you to represent other buyers and sellers. If a solid lead lands in your lap, you can facilitate the transaction for a commission.
3. The Right to Earn Referral Fees
Referral fees are carefully regulated in the real estate industry. Only licensed agents are eligible to receive a percentage of the commission as a referral. But the referral fees can be significant! Referring agents can often claim as much as 25-35% of the referred agent’s commission.
As a real estate investor, you likely have a network of property owners, renters, and other investors that will need to hire a real estate agent. As a licensed agent, you could represent them and earn the commission yourself. But, many investors don’t have the time or desire to serve as real estate agents for other buyers and sellers. Instead, you can refer these leads to a reputable agent, and collect your referral fee at closing!
4. Networking Opportunities
It takes a network of several real estate professionals to facilitate a single real estate acquisition:
- A reputable lender to finance your real estate deals,
- Escrow officers to confirm that the transaction is processed correctly,
- Title researchers to confirm that a clear title is conveyed,
- Inspectors to report on the condition of the property,
- Appraisers to confirm the property’s value, and
- Contractors to complete any necessary renovations or construction.
As a licensed agent, you have access to networking events and vendor lists that can help you make connections with the professionals you’ll need for successful purchases and sales.
5. A Formal Real Estate Education
Many real estate investors are self-taught. Books, online courses, and seminars serve as the basis for your real estate knowledge. While these resources serve investors well, some investors prefer a more formal education.
To get your real estate license, you’ll need to complete your state-required real estate course(s). This means you’ll get an insiders-only education into the workings of the real estate industry. You’ll cover critical topics like real estate law, finance, and principles. Some states also require electives, which can include a course on real estate investing!
3 Potential Downsides of Getting Your License as an Investor
1. The Time and Expense of Getting Licensed
Earning your real estate license takes time. Online real estate schools have made the process more flexible and convenient, but you’ll still need to invest several weeks or months (depending on your state requirements and how much time you can spend on your real estate education each day) in earning your license.
The cost of getting a real estate license is another consideration. In addition to your real estate course(s), you’ll also have application fees, exam fees, and license fees. The total cost varies widely by state, but you should generally expect to pay somewhere between $500 and $2,000 all-in.
You’ll also have recurring fees for things like MLS access, continuing education courses, and license renewals.
2. The Time and Expense of Representing Yourself in Transactions
Earning a commission on your real estate deals is great, but it requires real work on your end. And some investors simply don’t have the time to serve as their own agent. Fielding buyer inquiries on your listing, drafting contracts, coordinating the transaction through escrow…you might find that you would rather pay an established agent to represent you than invest your time in handling all of this yourself.
3. Broker Oversight
As a newly licensed agent, you must work under the supervision of a licensed broker. This can be a benefit; you’ll have an experienced broker reviewing your contracts to confirm that you comply with legal requirements. But it can also be an annoyance. If you’re used to operating as you see fit, having to get permission from your broker to proceed in a certain way can feel constricting.
Should You Get a Real Estate License as an Investor?
There is no right or wrong answer; this is largely a matter of preference. But, the more deals you do (or plan to do), the more you would benefit from having a license. If you do a few transactions per year, those commissions can add up to give you more investing capital! But, if you only plan to complete one transaction every few years, a license is probably not worth the time and effort.
How to Get Your Real Estate License
The exact process of getting a real estate license depends on your state. But most states follow the same basic road map to licensure.
Step 1: Confirm Eligibility
All states have a few basic requirements for real estate license applicants. In general, you must be:
- At least 18 years old.
- Legally allowed to work in your state.
- A high school graduate or GED recipient. College degrees are not a requirement in any state.
- Willing to submit to a background check as a matter of public safety.
- Of solid moral character (this is a common requirement, particularly in Southern states). You may need to submit references that support your character.
Check with your state’s real estate board to get their exact requirements before you proceed on the path to getting your license.
Step 2: Complete Your Required Real Estate Course(s)
There are many options for taking your real estate courses. You can take them through traditional real estate schools or online real estate schools. You can even take them through community colleges and universities if you want to earn college credit toward a degree.
Most investors choose an online real estate school for convenience, affordability, and self-pacing.
Step 3: Pass Your Real Estate Exam
Each state requires applicants to pass an exam before qualifying to receive their real estate license. Many states split the exam into two parts: the state-specific exam and the national exam. The exam isn’t easy. Only around 50% of test-takers pass the real estate exam on the first try in most states. But you can schedule a retake if you don’t pass on your first attempt.
Step 4: Choose Your Supervising Broker
Invest some time in interviewing multiple brokers to find a broker who is a good fit for your working style and who offers a competitive commission split. You can start this process even before you take your real estate exam if you want to speed up the process.
Consider virtual brokerages in addition to traditional brokerages. Virtual brokerages conduct business online rather than working from a shared office. They often have lower overhead, and they may offer more anonymity for investors who prefer to focus on their own deals (rather than finding buyers and sellers to represent). Be honest about your intentions; if you only plan to work your own deals (as opposed to bringing in new clients), make sure your broker candidates know that.
As you meet with potential brokers, remember, you’re interviewing them just as much as they’re interviewing you.
Step 5: Complete Your License Application
The final step to getting your real estate license as an investor is to complete your license application with your state real estate board. Once they issue your license, you are officially permitted to conduct real estate transactions and earn a commission for your work.
The Bottom Line
A real estate license is only as good as what you do with it. If you only do one deal every year or two, you may not get enough use out of a license to make it worth the effort. But if you plan to buy and sell properties regularly, getting your license and representing yourself in your transactions can increase your available investment capital and help you grow your net worth!