In 1986, I became a licensed real estate agent not long after I started my real estate investing career. Before I earned my license I had to rel...
In 1986, I became a licensed real estate agent not long after I started my real estate investing career. Before I earned my license I had to rely on a Realtor™ to get me into properties, wait for them to get me comparables and pay them a commission. The reason I had to rely on a Realtor™ was because they had access to the Multiple Listing Service (MLS). The MLS, in any given area in our country, is the single largest source of real estate for sale and in most areas only Realtors™ have access to it. After I purchased several homes at the beginning of my investing career, I decided I did not want to wait for or rely on a Realtor™ to buy and sell my own properties.
As a real estate investor, becoming a Realtor™ will give you many advantages. In fact, there are no disadvantages that I know of. Investors tend to be adamant one way or the other about being a licensed Realtor™. I am definitely on the side of becoming licensed. Being licensed has been one of the best tools that I have.
Real estate commissions are a costly, but usually necessary part of buying and selling investment real estate. The average commission is 6% of the selling price of the property, split between the selling agent and the listing agent. The commission is, typically, paid by the seller. If you buy a real estate investment and then resell it a couple of years later, using a Realtor™ on both sides of the transaction, there is a total of 12% in commissions being paid on that property. If you get your license you can easily cut that number in half and add 6% to your profits. In other words, if you get your license, when you buy the property YOU will receive the 3% that goes to the selling agent and when you sell the property YOU will receive the 3% that goes to the listing agent (of course your broker will take a percentage of that). How much is that 6%? The median home price in our country right now is about $215,000. Six percent of that is $12,900!
When you are buying real estate a critical component is knowing the actual value based on comparable sales (or comps). To be successful as an investor you need the most up to date comps especially in changing markets. I already mentioned the MLS is the single largest source of real estate for sale. It is also the best source for comps. It is the source that Realtors™ and appraisers use to determine the value of a property. Because comps are such an essential part of buying our real estate investments, I personally like to do my own. Maybe that is the controlling part of me J, but if you’ve ever tried to sell a property and found out it wasn’t worth what someone else told you and it cost you thousands in profits, you suddenly feel a very strong desire to make sure of the numbers yourself instead of trusting them to someone else.
If you are buying an investment through a Realtor™ it is reasonable to expect them to provide you with comps. If you are buying a home that is “For Sale By Owner” (FSBO) and you call a Realtor™ and ask them to provide you with comps, expect to wait a long time. You might be thinking, “Well, I’ll offer to pay them or offer to use them as my Realtor™ on another deal.” Here are the realities: First, you cannot pay the Realtor™ directly for providing you with comps. It’s against the law for a licensed real estate agent to accept payment for real estate work from anyone but their broker (I’ll explain the agent-broker relationship shortly). Second, very few people are willing to work for free on the promise that it might get them additional work in the future. And if you think that you are the first person that has promised the agent the possibility of future work in exchange for free labor…
Some investors say it gives you more liability to be licensed because you gain “expert” status in the eyes of the court. I have two answers to that:
1) What are you doing to create liability?
2) Don’t you think a judge is going to know you are an “expert” anyway when they find that you buy and sell real estate investments?
Some investors also say sellers won’t sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and “know what I am doing.” Being licensed gives you far more credibility in the eyes of a seller than simply being an investor.
An additional advantage to holding your real estate license is you can get additional commissions and referral fees. If I am showing my investment properties to potential buyers and they decide they aren’t interested in my property I always offer to represent them or help them find another property. If I look at a FSBO property I decide I don’t want to buy, I often offer to list the house for them. This way I can still get paid even if I don’t do a deal directly with the buyers or sellers. If you don’t want to work as a regular agent and just hold your license as an investor, you can always refer that buyer or seller to another agent and get paid a referral fee. Referral fees are the easiest money there is. Any time you know someone (friend, relative, colleague, etc.) who wants to buy or sell a home, whether it is in your own or another state you can offer to do a referral for them.
My recommendation is to GET LICENSED, if you are serious about real estate!!!
Once you make the decision to become a licensed Realtor™ you must work directly under a licensed broker. The broker oversees an office of licensed agents. To become a broker, each state has their own requirements. I have been a broker since 1997. When you earn a broker license you can have other Realtors™ work for you. Becoming a broker should not be the goal, unless you really choose to own a real estate company. Owning a real estate company is a whole different animal and business than being an investor.
As I travel the country, I am asked all the time how to locate a good real estate brokerage. This is always an important part of working as a licensed Realtor™, especially for us investors. You will want to work where the office environment encourages creativity, investing and entrepreneurship. Some offices are very traditional and only want their agents acting as regular agents and discourage creative investing. These are not the kind of offices we investors want to hang our license with.
You will also want an office that provides exceptional real estate training. Whether you want to work exclusively as an investor or if you want to work as an investor and a regular agent, training is important. The more training we have the more skilled we are, confident we are, and better able to get deals done. Pretty much every guru I know considers training an ongoing process.
The company I have found to be the best overall nationwide is Keller Williams. I am an associate broker in a Keller Williams office. Why? Keller Williams has a fantastic training program (their focus is training), literally second to none, along with several other key ingredients. Keller Williams is open and focused on real estate investing and entrepreneurship. The founder of Keller Williams, Gary Keller, has co-authored several books on real estate investing. I was featured in his second book, Millionaire Real Estate Investor. Gary Keller also endorsed my book , Investing in Real Estate with Lease Options and Subject Tos.
Much of my investing strategies and techniques have been focused around working with Realtors™. Keller Williams hosts a radio show every Monday called “Millionaire Mondays.” I have been on that show many times now and it helps expose regular agents to creative investing strategies. This makes our jobs as investors easier when it comes to working with other agents.
Keller Williams is the fastest growing real estate company in the world and they are currently the 4th largest. Many traditional agents move their licenses from other offices to Keller Williams. Gary Keller invented a system that has proven to be extraordinarily successful and no one else has been able to reproduce. There are many companies that have tried. A key component is each person you recruit becomes part of your “downline” and you start to receive a small part of the commissions they earn in addition to what you earn. It does not matter what office (called “market center” in Keller Williams) they are a part of you will be rewarded on who they bring in and how much they sell.
When I recruited agents to my office as a broker, I had to personally manage them. As a Keller Williams agent, I can still recruit agents and receive benefits from all of the sales they do without having to personally oversee them. It is a fantastic approach to becoming a Realtor™ which gives incentives for us to recruit other Realtors™. If you are interested in becoming licensed I would be happy to assist you and help you find a Keller Williams office.
Another great aspect of the Keller Williams culture is the commission splits. For real estate brokerages large and small, Keller Williams has some of the most attractive commission splits of any offices I have seen. This keeps more of your investing and Realtor™ profits in your pockets.
Because many of the other larger, national real estate offices often discourage investor agents, investors have historically been told it’s best to hang your license with a small “Mom & Pop” style real estate brokerage. The idea being that those types of brokerages have a more relaxed atmosphere and are more open minded to investors. While this is true, there are some disadvantages to the smaller brokerages. The commission splits in smaller brokerages are usually not nearly as attractive as those at Keller Williams. Additionally, smaller brokerages have no or next to no training at all. I can’t emphasize enough how important training is and how GOOD the training at Keller Williams is. Lastly, the smaller brokerages don’t have the support mechanisms. Having access to larger numbers of people doing the same thing you are helps keep you motivated and active. If you are shut off and isolated from other investors and Realtors™, you can easily stagnate and lose your focus and drive. At Keller Williams I can go to any Keller Williams office nationwide and use their office. I can use it for meeting clients, customers or working with their MLS.
I have used Keller Williams as my example here, but let’s recap the advantages of getting your real estate license and the importance of choosing the right brokerage. Some of the best advantages to becoming licensed are:
1) The training that comes with becoming a Realtor™
2) Access to the MLS – the best source for property for sale and marketing your own property as well as the most accurate comps
3) Increase your profits by keeping commissions and getting referral fees
4) Support to keep you motivated and focused
5) Increased credibility with your sellers
6) Any agents you recruit to Keller Williams generate additional income for you for every sale they do
I recommend you become licensed and consider Keller Williams as an office for you. I will gladly sponsor you and also assist you in working as a Realtor™ investor. Having been licensed for over 20 years and helping many other investors get started, I can help you get going in the right direction. When you go to Keller Williams let them know I am your sponsor and we can work together to help you as an investor and also to assist you in recruiting other investor Realtors™ in your team. Please email me to find the closest Keller Williams office to you at Wendy@WendyPatton.com or call me at 248-394-0767 and I will assist you in making a great choice for your future.
Visit www.wendypatton.com for more information!
Wendy Patton is the nation's leading expert in lease options and creative seller financing. She works with real estate agents and investors all over the country. If you would like to get her special report for no charge on ‘The Top 5 Mistakes MOST Lease Option Investors Make’, you can go to www.leaseoptioneducation.com to get a free download.
