Let’s first deal with some of the Pros
Pro – If you have your license you can earn some commission money on the way in and thereby infuse money into your project. Absolutely true.
Pro – You can leverage a better sale price by waiving your commission on the way in. Again, absolutely true.
Pro – You can find deals through your real estate license activity. In order to find deals you need to run a real estate agent business and network and advertise as a real estate agent. But you are a real estate investor, not a real estate licensee.
Pro – Biggest and most obvious pro of all, you can earn a commission on the way out, or conversely, simply save commission dollars should you choose to not charge your project entity a listing commission. Very true.
How about the Cons?
Con – Every state requires bi-annual continuing education, typically 28 hours every two years. Are you prepared to sacrifice those 28 hours every two years?
Con – Your initial impulse to consider getting your license was the money saved or earned when buying and selling, but have you considered that by law you need to hang your license in a real estate brokerage. Unless you have a broker friend who will let you hang your license for free, that broker will expect a portion of your commission, and you should expect it to be between 1-1.5%. And don’t even think about the Remax model unless you are going to be doing significant volume.
Con – Acting as a listing agent has challenges. You have to manage getting listings in the MLS, which includes not only physically putting them in the MLS but also arranging the photos shoots and executing a listing contract between real estate agent you and your entity. You will have to monitor showings and pro-actively reach out to buyer agents after showings. You will have to vet offers and buyer’s financials. You will have to manage weak agents on the other side. You will have to either hire a conveyancer to manage everything required for your buyer to get to the table or do it yourself. Simply put, a lot of work.
Con – Real estate investors who also have real estate licenses open themselves up to law suits if they do not explicitly represent themselves in the capacity in which they are operating. For example, if a friend gives you a listing opportunity referral and you meet with the prospective home seller, and he or she believes they are meeting with the potential listing agent for their property, and you end up talking them out of a listing and simply into selling the property to you off market, you may have just violated your real estate license if it can be demonstrated that by taking it as a listing and advertising it, your seller could have derived a greater profit. As a licensed real estate agent you are legally considered to be your client’s fiduciary. Exposure to law suits is real.
Here’s what we think:
Truly successful people stick to what they are good at, they don’t try to manage every aspect of their business, they delegate to people who are expert in those areas of their business that they are not. A great easy read that illustrates this principle is “Who Not How” by Dan Sullivan. So use your time to get expert as a real estate investor and hire a real estate agent to manage your listings. We recommend you find a broker who will list your rehabs for a $1,500 flat fee, no matter the price of your finished product. Now you might be thinking that a reliable strong broker would never erode their commission base. You would be wrong. If you are operating your real estate investing business correctly you should be generating leads through networking and advertising sources such as direct mail or print ads in small local newspaper publications. Many of those leads will be tire kickers. Take those tire kicker leads and pass them along to your broker, and when they make north of $50,000 a year in referred listings from you, see if they’re not thrilled to have your flat fee business. Very important, do not let this broker give you $1,500 worth of service. You need to concretely define your expectation, which is full service: managing the photos, MLS, showings, feedback, vetting deals, and closing conveyancing. So in conclusion, find a flat fee broker to list your properties and get expert at every aspect of real estate investing: networking, advertising, procuring properties, understanding ARV, managing rehabs, managing financing for your projects, managing rentals, and managing the vendors associated with your business. Once you have those skill sets mastered identify how to leverage those skill sets into even greater upward mobility which in plain speak means taking your business up a notch or swerving to a new career in an associated business, kind of like we did when we decided to open up Turning Point Lending.