Real estate investments are more than just a hedge against inflation and a way to diversify your holdings. Some common types fetch impressive ROIs, coming at 10.6% for general residential real estate, 9.5% for commercial real estate, and 11.8% for REITs. Many people find real estate investing strategies so profitable that they adopt a full-time business focus instead of just a segment of their financial portfolio.
You may have already decided to make investing a full-time venture and are looking for strategies to improve your earnings and streamline your operations. One common piece of advice is that investors should become licensed agents—but should real estate investors get a real estate license? Does it provide any value, and is that value worth it?
Before you can answer that question for yourself, look at the big picture of different types of real estate investing and the benefits each approach holds. Then you can more objectively compare strategies and tools that support each approach. We’ll take a deeper look at the potential value of a real estate license, the costs of having a license, and some alternative strategies that give you more flexibility at a much lower cost.
Should Real Estate Investors Get a Real Estate License?: 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 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.
Buy and Hold Real Estate Investments
This is a long-term investment style. Investors purchase a property on their own or in partnership with other investors. Then they typically lease the space to third parties. For example, someone might purchase raw land, offer it as paid parking space to RVs or car owners, and then develop it or sell it as the surrounding area develops.
One of the most common buy-and-hold real estate strategies is to buy a residential property (whether it’s 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.
Fix-and-Flip Real Estate Investments
This investment approach is faster and more hands-on. Investors will purchase distressed or otherwise below-market properties, renovate them, and sell them for more than the initial purchase price. This is called “flipping,” and it’s a very popular approach to residential real estate. In 2022, flips often saw a profit of approximately $67,900.
Real Estate Investment Trusts (REITs)
Investing in REITs is more like investing in index funds than other styles of real estate businesses. 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 is passive and requires significant upfront funding to generate a return, but it can be relatively secure for cautious individuals and advisors.
4 Common Approaches for Succeeding at Real Estate Investing
Each style of investing offers significant benefits but requires expertise and assets on the part of the investor. Many individuals might incorporate all three into their entire holdings while focusing on one strategy in particular. Depending on your preferred focus, any of these four methods for increasing your return on investment can give you the knowledge and resources you need.
1. Get a License—Should Real Estate Investors Get a Real Estate License?
A real estate license is a valuable tool for prospective investors. To become licensed, you are trained on a working knowledge of real estate contracts, the closing process, and other important industry information. It also grants holders access to the Multiple Listing Service (MLS) where property listings are posted by FSBO property owners and real estate agents acting on behalf of their clients. The primary benefit of a license is the ability to access these listings and upload your own listings without an intermediary.
2. Get an Advisory Group or Network
Investors generally see better returns when they have a network of niche professionals and experts they can turn to for advice. For example, a residential property flipper might have these trusted contacts or business partners:
- A general contractor who can manage repairs and upgrades
- A lender who can advise them on good deal terms and pricing conditions
- A business financial advisor who can help them assess cash flow and make strategic investments
- Professional stagers or photographers who can help prepare marketing materials for a listing
3. Become a General Contractor
If you’re interested in full-time flipping, being a general contractor can come in handy. You can manage your own repairs and inspections. In fact, many investors originally started as general contractors or repair professionals.
4. Learn About Investments Like Stocks, Bonds, and REITs
Gaining a solid understanding of the stock market, real estate holdings in REITs, and the nature of high-performing or low-performing REITs puts you in a good position to invest in trusts more strategically. Investors can learn through free books or courses, degree programs, and other channels.
Any or all of these approaches can strengthen your position as a real estate investor. However, it’s important to consider the financial costs, time commitment, and potential liability involved in each approach before committing. To answer the question, should real estate investors get a real estate license, we’ll take a closer look at the first approach.
Benefits of Getting a Real Estate License to Invest in Real Estate
In Texas, real estate agents must receive licensure through TREC, the Texas Real Estate Commission, in order to practice real estate, represent clients, and handle contractual transactions. This license is intended for individuals who want to operate as full-time or part-time agents, but 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 coming-soon 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 to Invest in Real Estate
But should real estate 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. But sellers who are also licensed agents are expected to have a much more in-depth understanding of property problems and are given much 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. Flat-fee listing services give investors the ability to upload listing details and communicate with other agents through easy-to-use interfaces.
Cost-Effective and Strategic Alternatives to Getting a Real Estate License
Real estate investors have so many options for buying, selling, and renting out properties that the conventional requirement of having an agent or being an agent has eroded. Instead of getting a real estate license, investors can easily adopt these strategies:
- Use a flat-fee listing service: These services give you all the tools you need to create your property listings. You can upload photos, fill in property details and pricing information, and communicate offer instructions. Some flat-fee services also offer auxiliary services like Supra rentals, pricing calculators with real-time data access, and professional photography services to make the transaction side of real estate investment easier. Then you don’t need a license and don’t have to pay a 3% fee to an agent.
- Build your network of professionals: Real estate agents amass a network of professionals over time: lenders, contractors, trusted title companies, and more. But you can form your own network and choose preferred companies or individuals.
- Learn how to manage FSBOs: For those who prefer the fix-and-flip style of investments, For Sale By Owner transactions are becoming increasingly popular. If you are comfortable with the contract language and managing negotiations on your behalf, you don’t have to be represented by an agent.
Optimize Your Investment Approach
Ambitious and self-disciplined real estate investors can create extremely efficient and streamlined business 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 a license.
Flat-fee listing services like ListingSpark are here to help. We offer smart pricing tools, MLS listing options, and a la carte software features and services to help you during every step of a transaction. Our sister title company can also streamline the fees and timeline of title work for every sale. Reach out today to see how you can represent yourself and invest without a real estate license—and without missing a beat.
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