One of the dilemmas for a real estate agent or a real estate investor is should she/he remain licensed or get a license to be an investor?
Basically the bottom line is would it be beneficial to have a license while pursuing a real estate investing career? In this article I want to share my personal experience on why I had been licensed for over 20 years, why I am not licensed any longer and the advantages and disadvantages I found out of having a real estate license.
Laura Alamery – my story of a real estate agent turned investor
In 1987 I decided to learn more about real estate and I got my real estate license. I was new to this country (I moved from Italy in 1985,) I did not understand a lot of the terminology and the basic real estate business law of do’s and don’ts. Furthermore I wasn’t aware that you could be a real estate investor, even if you didn’t have much money or resources.
From 1987 to 1991, I was a real estate agent licensed in Hawaii. During this time I ran across agents who were investors and I became more interested about that part of the business. I started buying books, purchased material from late night infomercials and I wanted to apply the information and see if it really worked.
In 1991 I moved to the mainland (in Missouri) and I started buying rental properties with “no money down” using creative financing strategies that I had read in the material (books and infomercials) I had come across. Within 18 months I purchased 16 properties, from single family to smaller multi family buildings, using creative financing. In 1993 I obtained again a real estate license (in Missouri this time,) since I wanted to work for a real estate investor, who was also a broker, and was very successful at“flipping contracts” (nowadays called “wholesaling.”)
I ended up keeping my license for the next 15 years and also obtained a license in New York, since I was living in both states and doing business (virtually) back and forth. In 2008, since I mainly started dealing in short sales and with banks for their REOs (Real Estate Owned or foreclosures owned by the bank,) I decided that it was too much of a conflict of interest: banks were not very lenient in dealing with real estate agents, who wanted to purchase foreclosures and pre-foreclosures for their personal use. Nowadays I am an unlicensed real estate investor and I don’t think I am going to get my real estate license again.
So what are the pros and cons about having a real estate license?
Here is what I found out from my personal experience.
Pros or Advantages of having a real estate license:
Access to the MLS (Multiple Listing Service) – honestly having access to the MLS was one of the main reasons I maintained my real estate license for so long. Nowadays there are other tools out there, like PropStream, that can give access to a lot of the same information. Valuable information you can get from the MLS is: comparables, cash buyers lists, expired listings, motivated sellers, etc.
Also if you are doing Fix and Flips, you can list and sell your own properties in the MLS. It is easier if you are an agent yourself and you don’t have to rely on another agent to do this for you. Plus you can save a lot of money in commission.
Credibility – being licensed qualifies the investor as a ‘professional,’ who knows thereal estate rules and applicable laws.
Commissions – as I stated above, if you are into Fix and Flips as an investor, you can list your own properties in the MLS. This will save a lot of money in commission since you have to pay only part of the commission to the cooperating agent, who represents the buyer. If you buy properties listed in the MLS, you can also earn a commission since you are an agent as well (representing yourself.)
Networking – there are opportunities to network with other real estate professionals through licensed agents, meetings hosted by the board of your local real estate agents’ association and other events for real estate professionals only.
However there are some cons or disadvantages about having a real estatelicense:
Disclosures – full clear disclosure must be done to buyers and sellers that you are a licensed agent. Investors sometimes have to walk a gray line in real estate investing as they are trying to negotiate the best deals for themselves, while at the same time being in full disclosure compliance and maintain the best interest for all parties involved.
Audits – as a real estate professional licensed by the State licensing board, you are going to go through some random audits. Files must be in order and have a written record of any closing, money disbursements, clear real estate company organizational structures (including board meeting’s minutes and agenda, even if you are the only agent in the company,) etc. These audits are time consuming and very stressful. They will take a lot of time away from real estate investing (in order to make sure all the file sare in order) and there could be penalties involved if not in compliance or even license suspension or revoking.
Licensing Course and Continuing Education Classes – in order to get a real estate license you are required to take a course, pass tests and finally pass the State and Federal exams, which can be quite difficult.
Once you are licensed, every couple of years you are required as a real estate agent to take courses for “continuing education.”
This can be time consuming, stressful and take precious time away from investingactivities.
Liability and Compliance – investors sometimes have to make decisions and moves that are not in full agreement with the disclosures and compliance as a licensed real estate agent. Unfortunately real estate licensed investors are more prone to be sued, reported to the real estate commission for negligent acts, regardless if there is good reason or not.
In conclusion, deciding to become a licensed real estate agent and being an investor at the same time is a personal choice after evaluating the pros and cons.
I personally don’t have a license any longer since I feel I can move more freely as an investor without worrying about disclosures or conflict of interest.
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