Hello, again my friends and welcome to another episode of Ask Marco where I answer your investing related questions.
Today’s question comes from Mike. The general theme here is that his question is will a real estate license help or hinder my real estate investing? Good question. Mike says, hi Marco. I’m a relatively newly licensed real estate agent in Northwest Arkansas. My work history is mostly in construction. About a month ago I read Rich Dad Poor Dad, which is the Robert Kiyosaki book. Then I found you through a Google search and have since immersed myself in all things passive income. I’m 53 and I want out of the rat race, ASAP and he capitalizes as soon as possible. Thanks so much for all the great info and inspiration that you and your team provide. I have scheduled a call with one of your investment counselors for me and my fiancée. We are very excited about that.
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My question for you today is how can being a real estate agent help or hinder my goals for real estate investing in general? Does there ever come a point where it can get in the way of investing full time? So this is a good question. So any concludes by saying thanks again. I look forward to your response. Okay, so well here it is. First of all, congratulations on reading the book, getting your license and wanting to get out of the rat race. I know that book is basically a head Turner for so many people. It just changes your mindset and really wakes you up to so many things and although literally millions of people have read the book, there are still tens of millions, if not hundreds of millions of people who have not read the book. And it’s such a foundational book, not so much for tactics but for mindset.
So great upon you for reading the book and congratulations on getting your license. So little bit of history on this question because I remember this question from 1516 years ago, if not longer, and there was always a negative stigma. If you will with getting a real estate license, if you want it to be a real estate investor, whether part-time or full time. And I think the reason for that is because in some cases held you back in your ability to negotiate with prospective sellers when you want it to purchase their property. Why? Because it is a law probably in every state that you need to disclose that you are a licensed real estate professional because you supposedly know more than the average Joe. So if you are in a situation where you’re dealing directly with a seller and trying to negotiate on the purchase of their property, you have certain responsibilities being a licensed real estate agent and that is fiduciary responsibility.
So you cannot supposedly take advantage of a seller regardless of their situation. So, the fact is that you need to disclose the fact that you are licensed and that you have a certain amount of knowledge which is probably more than the person you’re dealing with. And so just to keep things on a level playing field and fair, you’re supposed to disclose that, especially on a purchase contract. Now if you’re working through another brokerage or agent, then you should still disclose but it’s probably not mandatory. Now don’t quote me on that part because that probably changes from state to state when you’re one party removed, but the benefit today is that if you are planning to fix and flip, in other words, you’re out on the hunt looking for deals. It gives you access to the MLS, it gives you access to other resources, people within, you know, within the larger network of your real estate agents to get your hands on, on deals that are coming down the pipeline.
But if your plans are not to be an active real estate investor and meaning you’re buying and negotiating directly with sellers for buy and hold properties or you are looking to buy fix and flip properties where you still are dealing directly with sellers and in some cases wholesalers, but still you’re contractually getting involved directly with a seller. You have the advantage of the MLS, which is probably the most powerful tool you have when you’re on the hunt for specific properties, especially if they are distressed situations like a distressed property or distressed seller and it just gives you kind of a leg up. That’s the main benefit really. So it comes down to two things. The knowledge you gained from going through studying and reading the books and going through the course of becoming a licensed agent. Number two is once you are hooked up with a brokerage, you have access to the MLS in your local area.
Now if you’re not investing in your local area or you’re not working in your local area as an investor, then the benefits diminish tremendously because you won’t have access to an MLS outside of your local region or state unless you’re licensed in that other location. The other thing too, which is kind of a con if you will, is there is a cost. The license doesn’t come for free. There’s an annual fee to hold and maintain it with the real estate board every so often, whether it be three, five years, depending on where you’re located, you’ll have to go through continuing education courses to renew that license. And also if you’re using the license, if you’re actually using it to your advantage and you’re hanging it with a real estate brokerage and you’re using the MLS, there’s going to be a cost, a cost for the transactions you do.
There’s a cost for access to the MLS. There’s the annual renewals. And in some cases, brokerages will require you to have insurance. So that can be in the hundreds of dollars. And in some places, some States it could be as much as $1,500 or more per year just to have and hold that license. So the last thing I’ll say is that in probably every state there are disclosure laws. What that means is that if you are a licensed real estate agent, you have to disclose whenever you’re dealing with a seller and you’re a party in a transaction, it just has to be made known to stay compliant with the laws. So will it get in the way? Will it help or hinder? Um, I think if you’re planning to be a passive real estate investor, build a portfolio with the help of a team and you’re not the one doing all the work boots on the ground, you probably don’t need it.
The fact that you already have it and you’re probably using it as a full or part-time real estate agent to generate income as a small business for yourself, then you have to have it. So it’s not even a question. It’s not an option. You already have the license, just disclose it whenever you’re doing a deal and you’ll keep your hands clean and you’ll be fine. Beyond that, I really don’t see much of an advantage. You have the education and you have access to your local MLS and, and if you’re dealing directly with sellers, you have the ability to use your commission towards the purchase. You just again, have to disclose that and put it on the settlement statement. So that could be whatever the percentage is based on the brokerage you’re with. But it can be as much as 3%, sometimes more. Sometimes it’s half of that 1.5% of the purchase price.
And really that’s where it ends. I don’t see any other major advantage, but you’re on the right track, you’re educating yourself. It sounds like you’re motivated and inspired and, and you’re looking to make some, uh, some improvements for you and your fiancée. So congratulations there and that’s it. Mike, if you have any other questions, just follow up with me and my team and for the rest of you, if you have any other questions about real estate investing or finance, let me know. Click the ask Marco butto at the top of the website at passiverealestateinvesting.com. Remember to subscribe, share the show with likeminded people. Visit us on iTunes, leave us a rating and review. I do read every single one of them. Thank you to all of you for all the five-star reviews. And again, thanks for listening and we will see you on our next episode.
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