Should Real Estate Investors Get a Real Estate License?

Real estate investing is a serious business. Hundreds of individual investors throughout the industry have their own strategies for finding profitable properties, leveraging them on the market, and generating profits for themselves and their businesses. 

Over the past several decades, one popular strategy has been to get a real estate license and represent yourself as a buyer, seller, and property manager. The National Association of Realtors actively encourages agents and brokers to invest in real estate alongside their job duties.

However, today’s investors don’t necessarily need to be an agent. Historically, this would grant you the skills, insights, and network to thrive in real estate. Today’s online databases, market research resources, and full-service real estate investment support services often make holding your own license superfluous. Take a closer look at the benefits and drawbacks of this strategy, as well as other real estate investment strategies you should consider. 

Benefits of Getting a Real Estate License for Property Investment

In Texas, real estate agents receive licensure through the Texas Real Estate Commission (TREC) to practice, represent clients, and handle contractual transactions. This license is for individuals who want to operate as full-time or part-time agents. Many agents invest in properties, and some investors get their licenses solely for their investment business operations. Some of the benefits of this approach include:

• Access to the MLS for prompt viewing of active and upcoming listings that fit their investment parameters
• The ability to list renovated investment properties on the MLS without relying on a third-party service
• Not having to pay commission for an agent acting on their behalf (typically 3% of the property purchase price)
• Knowledge of TREC contracts and standard real estate practices in Texas

Drawbacks of Getting a Real Estate License for Property Investment

Should property investors get a real estate license? Despite the above benefits, there are significant drawbacks to consider before getting your license. These include:

• Licensure costs: Direct licensing fees, the cost of continuing education, and monthly dues or fees to a brokerage can quickly cut into your bottom line.
• Professional liability: As a licensed professional, you’re held to a much higher standard of conduct for every transaction you manage. For example, sellers must always disclose known problems or concerns about a property. Sellers who are also licensed agents are expected to have a much more in-depth understanding of property problems and are given less leniency for potential errors and omissions.
• Reduced benefit: Another drawback is that the benefits simply aren’t as important as they used to be. Today’s unlicensed investors can easily access TREC contracts, learn how to manage transactions, and handle marketing. The right listing services allow investors to upload listing details and communicate with other agents through easy-to-use interfaces.

Requirements and Benefits of Different Real Estate Investing Types

Different investors focus on completely varied types of investing and properties. One investor may put their retirement savings in passively managed real estate investment trusts (REITs). Others might buy up hundred-door apartment complexes or purchase large shopping centers. While there are countless approaches, they largely fall into three different categories. Each one has its own benefits, costs, and requirements.

Type 1: Buy and Hold Real Estate Investments

The buy-and-hold approach is a long-term investment style. Investors purchase a property on their own or in partnership with other investors. They typically lease the space to third parties. For example, someone might purchase raw land, offer it as paid parking space to RV or car owners, and then develop or sell it as the surrounding area develops.  

Related: Is The House-Flipping Boom Over for Investors?

One of the most common buy-and-hold real estate strategies is to buy a residential property (whether a single-family home or a multi-family property) and seek tenants who pay rent. The buy-and-hold style of investment can yield a predictable and relatively consistent ROI. It can also be hands-off if you use a property management company.

Should You Have a License for Buy-and-Hold Real Estate Investments?

There are potential benefits of having a real estate license if you prefer buy-and-hold investments. First, you can directly shop around on the MLS without the assistance of an agent, allowing you to see listings very quickly. 

More importantly, you can examine trends within a given neighborhood, see what comparable properties have sold for, and view an individual property’s past MLS records. While none of these advantages are necessarily unique, being an experienced agent will give you more familiarity and expertise with the tools. 

However, you don’t need a license to get these benefits. You can easily coordinate with a trusted agent or use third-party market analysis tools to get the same insights. Assess properties, forecast the likely sales price, and use sites like HAR to have virtually the same real-time market access as through the MLS. 

There are three potential benefits of getting your real estate license in select scenarios:

1. The ramifications of a significant NAR settlement are still unknown. In recent months, the National Association of Realtors has reached a settlement regarding commission fee structures and how the fees for both the seller’s and buyer’s agents are wrapped into the total sales price. While the paperwork has been finalized, it’s still not clear to what extent this will impact a buyer’s ability to “not pay” for an agent upfront. If you need representation as a buyer but want to avoid an additional 3% out-of-pocket fee, getting your real estate license can help you more confidently represent yourself. 
2. A license is beneficial if you like managing properties and want to do it more often. Buy-and-hold investments are mostly rental property investments. You can either manage your own property or hire a business to do it on your behalf. If you enjoy managing properties, you might decide to make it a more significant part of your income by managing others’ properties. But to start a property management company in Texas, you generally must have a real estate broker’s license, and that process begins with a real estate license. 
3. Licenses are beneficial when you’re still in the acquisition phase of your holdings. There are plenty of strategies for selling properties without a real estate license in Texas, but there are fewer options for buying. If you’re still in the beginning phase of building your real estate portfolio, it may pay off to get a license for the next few years. Once you’ve hit your acquisition goals, you can let the license lapse and simply use an advanced real estate listing service once you’re ready to sell.

Type 2: Fix-and-Flip Real Estate Investments

This investment approach is faster and more hands-on. Investors purchase distressed or otherwise below-market properties, renovate them, and sell them for more than the initial purchase price. This is known as “flipping,” and it’s a very popular approach to residential real estate. In 2022, flips often saw a profit of approximately $67,900.

When you flip properties, you’re selling them frequently. After all, the less time you hold onto them, the fewer holding costs you’re paying, such as utilities and mortgages. The counterbalance is speed with a tightly controlled budget, as it’s easy to accidentally let renovation expenses, professional fees, closing costs, and real estate agent commissions eat into your profit margins. 

Should You Have a License for Fix-and-Flip Real Estate Investments?

Owning a real estate license as a flipper used to be the conventional course of action. After all, you could list your own properties, represent yourself, and avoid paying a real estate agent fee. That would give you all the advantages of having a listing agent with few of the costs.

However, there are downsides to this approach. For example, being a licensed agent could make you a bigger target for legal action if a buyer is unsatisfied with the property. Even if the case has no substance, you become a more tempting target because you have more to lose—you’re also held to a much stricter standard of disclosure when you’re licensed.

Related: Simplify Real Estate Investment: Essential House Flipper Platforms You Need Now

There is a third course of action available. Comprehensive full-service, flat-fee home selling platforms allow non-agents to list their flips on the MLS—no license required.  Flat-fee services that go beyond basic MLS listings include smart pricing tools and additional services so you can get market insights and all the support you need while forecasting the success of potential flips, setting the price, and selling properties.

Type 3: Real Estate Investment Trusts (REITs)

Investing in REITs is more like investing in index funds than other styles of real estate business. Investors can research different holdings and philosophies of these trusts, add a portion of funds to the pool, and receive returns based on the market conditions and performance of the REIT. This style is passive and requires significant upfront funding to generate a return, but it can be relatively secure for cautious individuals and advisors.

This investment option provides a more clear-cut answer regarding whether you need a license. While the MLS can provide a great deal of market research, there are so many other market analysis tools and information sources available, meaning managing all the costs and requirements of retaining licensure isn’t worth it.

Cost-Effective and Strategic Alternatives to Getting a Real Estate License

Getting a real estate license has several advantages, but it doesn’t have as many unique advantages as it once did. Instead, modern alternatives can give beginner and experienced real estate investors everything they need to profitably buy and sell investments. Consider these options: 

• Purchase off-market properties. If you stay connected to a local network of property owners, contractors, and other real estate professionals, you can build a steady stream of insights into off-market properties and FSBOs. By engaging directly with sellers and conducting research, you can significantly reduce the cost and timeline of buying a property. 
• Buy and hold properties for long stretches of time. The longer you hold properties, the fewer transactions you have. You can easily hold properties (whether undeveloped land or residential properties) and make revenue off of them without selling them.
• Use advanced full-service, flat-fee home-selling platforms. When you’re ready to sell a property, you don’t need to have a license or use a lawyer in Texas. You don’t even have to have an agent represent you. You can represent yourself as an unlicensed seller, market your property on the MLS, and have all the support you need through the right online intermediary. 

Optimize Your Investment Approach Without a Real Estate License

Ambitious and self-disciplined real estate investors can create highly efficient and streamlined operations while maintaining control of the business. Instead of undergoing the costly process of getting and retaining your real estate license, you can represent yourself without one.

The right full-service, flat-fee home-selling platform can be the basis of your operations. ListingSpark offers smart pricing tools, MLS listing options, and real estate software for investors with a la carte features and services to give you just the support you need during every step of a transaction. Our sister title company can also streamline the fees and timeline of title work for every sale. Contact us today to see how you can represent yourself and invest without a real estate license—and without missing a beat.