One of the most common questions that new investors ask me every day is whether or not it is convenient for them to obtain their real estate license. I spent many years as a real estate investor wholesaling, rehabbing, repairing, flipping and renting without obtaining a license. In the end I decided that it was beneficial to obtain my license and that having a license does not hinder your ability to operate as an investor.
If you are considering whether or not you should get your license, here are some points to consider:
- Why are you considering getting your license?
- Are you required to obtain a license?
- How will having a license to operate as an investor benefit or hinder?
The first question to ask yourself is why are you considering obtaining a license. If the answer is because you want to be an agent and show properties to buyers and sellers for a commission, then you obviously need a real estate license. However, for most investors who are interested in investing on their own, the lines get much blurrier.
The second question to ask yourself is whether you need to get a license. Many investors don’t know when and if they need a license and often assume they don’t need it when they need it. If you are a full-time wholesaler and assign contracts to other investors for an allocation fee or close your own transactions for profit, you probably don’t need to obtain a license. However, you must have a beneficial interest in the property, which means that you must have a valid contract stating that you are the buyer of that specific property and that you have an equitable interest in it. If you do not have a beneficial interest, this means that you cannot find buyers for other wholesalers.
If you are an active wholesaler with a list of active buyers, you will probably network with other active wholesalers in your area. If you do, you will invariably find yourself in a position where you meet buyers looking for a home in a certain area, and one of your wholesale associates might have a home under contract in that area. In this scenario, you would be crossing the line as you have no interest in that particular property and are marketing it. This would require you to have a license. Note that this applies regardless of whether or not your associate gave you permission to find a buyer for your deal. Do not rely on joint venture agreements or beneficial interest agreements to help you bypass this regulation. Local real estate licensing authorities may ask you for proof of your beneficial interest and will look up your name on the deed or contract. So in short, if you are marketing your own offers, you don’t need a license, but if you are marketing other people’s offers, then yes. If you don’t have a real estate license, you won’t be able to find buyers for other investors. You also cannot help other investors sell their properties. or a property for someone else (with some exceptions).
The final question to ask yourself is how having a license will hurt or benefit you as an investor. If you only wholesale your own deals, manage your own properties, or repair and change your own properties, then you don’t need a license. However, the more active you are as an investor, the more opportunities you have to benefit from being licensed. You will be able to list properties, manage properties for others, wholesale offers from other investors, find sellers for other investors, find buyers for other investors, save money on purchases and sales, and gain access to the MLS. In short, there are many benefits to having your real estate license.
What are the negative aspects of having your license? I really don’t see any. You will have to disclose that you have a license and will be obligated to act ethically (which you should already be doing). Having a license will give you more opportunities to earn money and if you are considering being a full-time real estate investor, having a license will benefit you in the long run.