Investment Realty – Being a Licensed Agent and Investor
Investment realty is defined as a licensed real estate company specializing in dealing in real estate for investment purposes – either flip, fix and flip or long term investing, like buy and hold.
One of the questions I get asked a lot from new real estate investors is if they should get licensed as a real estate agent: would that help them in their real estate investing career? In this article I want to point out some of the advantages and disadvantages of becoming licensed as a real estate investor or running an investment realty company.
When I started real estate investing, I decided after a while to become a licensed real estate agent, and eventually I opened my own investment realty company.
I did this for the following reasons:
Access to the MLS (Multiple Listing Service) – there is a lot of information that can be obtained from the MLS: comparables, cash buyers lists, expired listings, motivated sellers, etc. From time to time, properties will be listed and sold through 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. I put together a program on creative ways to use the MLS Strategy.
Credibility – licensed agents have to follow the ‘code of ethics’ from their board of realtors in order to be allowed to practice without any problems. Being licensed qualifies the investor as a ‘professional’, who knows the real estate rules and applicable laws.
Commissions – when properties are purchased that are listed in the MLS, there will be commission paid to the buyer’s agent. If the buyer/investor is also an agent, that commission will go to him/her. And once you list the property as a ‘listing agent’, you have to pay only half the commission to the cooperating ‘selling agent’, who represents the buyer.
Networking – there are opportunities to network with other real estate professionals through licensed agents only meetings. The more people you know in the business, the more people you can tell you are looking for property. Sometimes the best deals are those that are brought to you, not the deals you find yourself. Let everyone know you are looking for investment properties and you never know what will come up. Agents, and other real estate professionals, like title companies, once they know that you are an active investor looking for properties, they will let you know when they have a lead on properties that are not even listed on the MLS.
Now there are some disadvantages in getting a license as well:
Disclosures – full clear disclosure must be done to buyers/sellers that you are a licensed agent; you can’t “knowingly take advantage” of a buyer/seller; etc. Investors some times have to walk a gray line in real estate investing as they are trying to negotiate the best deals for themselves, but at the same token being in full disclosure compliance. That is why a lot of real estate investors do not want a real estate license.
Audits – as a real estate professional licensed by the State licensing board, you are going to go through some random audits. Paperwork must be in order and written record of any closing, money disbursements, investment realty organizational structure, 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 files are in order) and there could be penalties involved if not in compliance.
Licensing Course and Continuing Education Classes – in order to get your license as a real estate agent, you have to take a course several hours long, pass tests, and finally the State exam. On top of that every 2 years you have to attend continuing education classes in order to renew the license. Again, this can be time consuming and take precious time away from investing activities.
Liability and Compliance – investors some times have to make decisions and moves that are not in full agreement with the disclosures and compliance of licensed professionals. They are not illegal, but at the same time, it depends how a third party or a court (in a lawsuit) look at the transaction. Therefore 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 run an investment realty company instead of just a real estate investment company is a personal choice after evaluating the pros and cons.
I was licensed as a real estate broker for over 20 years and owned several investment realty companies. However I do think that being an investor without a real estate license gives you more freedom of choices and movement, without the scrutiny of a licensing agency and risk of audits and lawsuits.
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