Today’s question comes from Charmes and I hope I’m pronouncing that name properly because I’m not sure if it’s French, but in either case, she writes in and says, hi, Marco just found your excellent podcast today. My spouse and I are in the home buying process and desire to be a real estate investor of single-family home rental properties. Is it necessary to be a real estate agent or broker to become a successful real estate investor in other States? If yes, which real estate school can you go to, to become an agent or broker for California? And if no, how can a newbie build a team? As you mentioned in episode 253.
Thank you, Marco, and good health to you. Thanks, Charmes.
Again, Charmes, thanks for the question.
I’m not sure if I pronounce your name properly, but if I didn’t, I apologize, in any case, this is a good question because it comes up often. And I used to think about this question a long time ago, myself. I didn’t get licensed right away here in California when I started investing in real estate, but ultimately I did. And that was really a recommendation from someone that I knew at the time. And he said, you’re kind of crazy not to, even though I wasn’t investing in the state of California, but long story short, there were pros and cons to getting your real estate license. And I’m not going to say that it’s a good or bad idea. It really depends on what you want. And what’s important to you at the time. Right off the top, I will say that if you’re looking to invest locally in the state of California and you’re going to be doing work within the state of California, then it probably makes sense for you.
If you’re looking to invest in other States, then it probably won’t carry a lot of weight because you’re going to be working with a team in another state and they will be licensed and be your team. If you don’t have a license in the state that you’re actually working in, it probably doesn’t provide you a lot of benefit. Long story short. If you have a license in the state that you are buying property as investment rentals, then it gives you direct access to the MLS. And that’s really the main benefit more often than not aside from the money, the commissions, but if you have access to the local MLS in the state or city that you’re investing in, then you can find the deals you’re looking for, supposedly the good deals. But if you’re looking for certain types of deals, it’ll give you access to it very quickly. Plus if you’re local, it gives you the access to go to those properties and go in anytime you want, because there’s going to be a lockbox and you just set an appointment with the listing agent and you can go in and check those deals right away.
So direct access to the local MLS is a huge factor because if you don’t have access to the MLS, the multiple listing service, then you’re going to have to gain access to it through someone else. Or you’re just gonna comb high-level information on websites like Zillow or Trulia or Redfin or whatever It may be. realtor.com. The other benefit of having a license is that you can share in the real estate commission. So the total commission might be anywhere from five to 6%. That’s split between the buying and selling agents. I usually three and three. And if you’re working with a brokerage, you’re going to share in most, if not all, but most or all of that commission. And so you can put that towards your down payment or repairs or whatever you need the funds for. And so having your own license, you can represent yourself and therefore you earn the commission and you could use that towards the purchase and or sale of your properties. I’m assuming you’re thinking about the license as a tool and not as a career because a lot of people get a real estate license to become a licensed real estate agent or broker and turn that into a source of income. If that’s what you want to do, then you have no choice. You have to be licensed. If it’s just for real estate investing purposes, it’s not going to make you successful. It’s not going to guarantee success. It just provides you some extra tools and leverage in certain situations. And of course, you control your own deals. You have full control over the transaction. You are directing all the parts of it and you’re handling the paperwork, contracts, disclosures, and whatnot. And you send that to the lenders, appraisers, inspectors, and title companies and attorneys, and whoever’s involved in the transaction. So that’s more work, but if you’re getting paid for it, then essentially you’re earning it. So don’t think of it as that much of a benefit, but you are saving yourself some money because you’re keeping those commissions and gaining some control.
Now, I guess the disadvantages of that are you are getting yourself a license. So it, that is not necessarily easy. It’s going to take a lot of study. You may have to go to classes, live, or do it online. I know that with classes, it can take up to 120 hours of class time to qualify, to take the test. And then, of course, you have to pass the test, which is often pretty difficult. It’s been a few years since I took my well, actually many years since I took mine, but I know that it is probably a good two hours, if not three or more. Now, the other thing too is being a realtor is not the same thing as being a real estate agent. If you’re licensed you’re real estate agent working under a brokerage, but if you want that trade name realtor with the little R in a circle that is actually a brand owned by the National Association of Realtors. And so that is yet another fee on top of it all. Now, if you’re just investing for yourself and you’re not actually acting as a real estate agent for clients, buyers, and sellers, then it probably carries no weight for you because that’s just a badge of sorts that shows that you have a certain level of professionalism and you have been approved by the national associates and real chores to carry the realtor brand. But again, that’s just another cost. And also keep in mind, if you get your license, you have to hang your license, as they say with a broker. So you are working under a broker’s license and therefore there may be some costs and fees there. And there are also 100% houses where you keep a hundred percent of the commission. You just pay a transaction fee every time you do a transaction, which can be pretty phenomenal. Sometimes they have desk fees, which again is pretty low, but those are the other things to consider. There’s also paperwork. Often, you’re going to end up doing a bunch of paperwork, and if you don’t want to be doing that, then just have a real estate agent do it for you. And this is all assuming that you are looking for a property through agents and brokers, and that are mostly on the MLS. They’re not necessarily available as exclusive or off-market properties. Sometimes agents have a pocket listing, a pocket deal that is not listed, right. And for you to have access to that, right, you have to have a pretty darn good relationship with the real estate agent or broker because they’re saving those deals for their best clients. And unless you have a long relationship with a real estate agent or broker, you’re probably never going to see those.
The other thing too, to consider as a negative, if you will, having a real estate license is you have to be disclosing everything. You have to be completely transparent and have full disclosure. You are essentially held to a higher standard. So therefore, whether you’re dealing with a buyer or seller, the fact that you’re a licensed agent, you have to disclose the fact that that you’re a licensed agent and that even though you’re buying the property for yourself or for someone who’s related to you, the seller or the other party needs to know that because you are essentially putting yourself on the line and making sure that you, you are acting in everybody’s best interests and you’re being ethical and moral. The whole reason for this is that people are trying to make sure that you’re not knowingly taking advantage of the other party. And therefore you have to just come right out and disclose the fact that you are a licensed agent. For some people, this may be a negative thing for some, they are just, you know, saying, Hey, I’m just negotiating a deal. I’m doing business as business. And I’m putting all the facts on the table. And so it really doesn’t matter, but you are required to disclose that fact and you are held to a higher standard. And of course, there’s the maintenance cost. So if you’re going to have a real estate license, there are probably as much as several thousand dollars per year to hold on to that license. In terms of renewals, maybe brokerage fees, continuing education every few years to renew your license, et cetera. So there’s no guarantee that you’re going to be making money from the cost and time of getting the license. But if you have it, it may be an advantage. Of course, at the end of the day, you don’t want the real estate license to be a distraction to ultimately what you’re trying to do. And that is invest in real estate.
So if it’s going to help you and you know, it’ll help you then go for it, move forward and get the license and work with a broker and use the tools available to you. If not just build the team, that’s going to help you accomplish your goals, which leads to your last question here. You know, if you’re a newbie and you want to build a team, well, if you know other real estate investors, and you’re not working with a turnkey company or turnkey provider like our company, then you need to basically focus on the market or the markets that you want to invest in and start doing your research and due diligence and calling up not only agents, brokers, and other service providers that you’re going to be using to essentially interview them and vet them. But you are going to have to tap into other people for references and referrals, just to make sure that you’re building the right team in the market that you want to invest in or in the state. But usually it’s a focus of a metropolitan area or a city that you’re going to be focused on.
If you want to get your license in the state of California. Cause I assume that’s where you’re from. And you’re going to be focused on doing stuff in California. Just go to a search engine and type in real estate schools. And you’ll come up with a whole bunch of them. I know there’s tons in California from Allied schools to Real Estate Express and First Tuesday I think is another one. You’ll find a lot of them. You just have to do a Google search.
So I hope that answers your question. There are pros and cons and there’s no one right answer. It really depends on you what you’re trying to do, where you’re trying to do it. And you know, what’s important to you in terms of cost, time and advantages and disadvantages as it relates to having that. But I can tell you one thing for sure, having been on both sides of the fence and knowing a lot of real estate investors, most of which the grand majority of them do not have a real estate license of any kind.
So to the question, should I be a real estate agent to become a successful real estate investor? My answer is absolutely No, you do not need to be a real estate agent. It’s just another tool in the toolbox. And if it serves your needs and helps you to achieve your goal, then it’s worth looking into.
All right. Well, I appreciate the question. Thanks for that. If anyone else has a question about real estate investing or finance and you’d like me to take a shot at it on the show, just go to passiverealestateinvesting.com or click the button at the top of the site, or go to AskMarco.com. And I will take your questions and try and answer as many as I can on the show. If you haven’t already subscribed, remember to subscribe, and thank you for listening. I’ll see you on our next episode.
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