Flipping homes is a lucrative real estate investment strategy, but it can also be a risky one. Without the right knowledge and expertise, you might find yourself with a property that has extensive foundation problems or a post-renovation value that doesn’t reach your break-even point. Even with the right properties, the growing cost of renovations and supplies can make eking out an acceptable profit margin harder than ever before.
While the average ROI of a flip was 51.4% in 2017, it plummeted to an average of 26.9% in 2022. That’s not to say there’s no more room for profitable flippers; the same reports found that gross profit grew by $2,900 across the same period. But it does mean you need to carefully refine your processes to minimize risk and maximize profit.
Some prospective house flippers look at the numbers and all the steps of buying, repairing, and selling a flip, and they consider what certifications or licenses they can get to streamline the process. A popular consideration is getting a real estate license. After all, you can then search for homes on the MLS, negotiate contracts without a real estate agent (or expensive commission), and then list it back on the MLS.
While this can help savvy real estate investors, it can also be a costly overstep. Keep reading to see some of the strategic advantages getting a real estate license can provide—and then some alternative real estate investment approaches that get you the same benefits without all the strings.
The Purpose of a Real Estate License in Buying and Selling Homes
In Texas, homeowners have the option of selling their home as ‘for sale by owner’ (FSBO), and prospective buyers can also make offers and represent themselves. However, individuals on either side of the equation face a barrier to the market: lack of access to the MLS, or multiple listing service, that houses all the details about properties. This database shows coming-soon properties, active listings, pending and contingent properties, and the history of transactions for each property. When you hire a listing agent as a home seller, they create the listing on the MLS. When buyers hire an agent, the licensed professional accesses the MLS to find properties that match the client’s needs and preferences.
Licensed real estate agents also provide other services and benefits, including:
- Experience with the TREC promulgated contract forms (which virtually all house sales use)
- A network of photographers, contractors, lenders, and other realtors to streamline transactions
- Experience with pricing and negotiating deals within a given region or market
However, a real estate agent can also cost you 3% of the property’s sales price. So for house flippers that need back-to-back transactions, you can find yourself paying a lot of additional money in commissions, which eats into your bottom line. While you might feel comfortable without a real estate agent’s experience or network, that vital MLS access is a business necessity. That’s why so many house flippers consider getting their license and cutting out the middleman.
Advantages of Having a Texas Real Estate License If You Want to Flip Homes
If you’ve been involved in Texas’s real estate market for any length of time, you might have encountered a few investors who have a real estate license. Chances are good these individuals become real estate agents first and part-time investors second, but it can make you think of a few tempting advantages of the arrangement. Here’s why getting a license might be a good idea.
Direct Access to the MLS
Trying to be a real estate investor without easy access to the MLS can be an exercise in futility. The database is the first place buyers and sellers typically go for information and to post new properties. As a buyer, if you have to wait until a property goes active and the listing reaches Zillow, it might already be too late. If you’re a seller and you can’t post your listing on MLS, then you can’t effectively reach the vast majority of the market. Trying to use indirect channels like Craig’s List will get you lower prices and fewer options.
But when you have an active real estate license, you can pay an annual fee for access to either the residential-side or commercial-side MLS. That gives you ring-side seating for listings that are coming soon and to publish your own listings without working through someone else.
Seeing Promising Homes Before Other Investors or Buyers Do
Speed matters when you’re trying to find profitable properties. Active real estate agents who work in large brokerages often have early insights into properties that are about to hit the market. Listing agents often share the details of coming-soon properties so they can drum up interest and present fast offers to their sellers. If you’re an agent, you get to hear about all these properties directly.
Accessing More Real Estate Deals
No matter what type of real estate investing you do, having a lot of experience with transactions, contract terms, and negotiations puts you in a much better position to turn a profit. If you’re a real estate agent, you’re engaging in the market every day, and this means you’ll quickly gain more experience. You can get coaching from fellow agents, hear how other agents and investors do business, and quickly become more familiar with every stage of the process. That’s a solid win—provided you want to be both an active agent and an active investor.
6 Reasons to Think Twice About Pursuing a Real Estate License When You Want to Flip Homes—Not Be an Agent
Despite the benefits, there are also a lot of potential downsides and inefficiencies to that course of action. Consider this extensive list of reasons to rethink becoming licensed when you simply want to flip homes.
1. Acquiring a Real Estate License Can Be Expensive and Time Consuming
Getting a real estate license and becoming an agent isn’t cheap. Some industry experts put the cost at $1,000 to $1,500 just for the license. You also have to complete coursework, take a test, and spend time going through the process. For most people, the licensure procedure can take up to six months. Also, this fee doesn’t include the additional fee for getting access to the MLS in the first place.
Quite frankly, unless you want to be an actively practicing agent, it’s not worth it.
2. Keeping Your License Requires Continuing Education and Money
Real estate agents are professionals. That means they have an obligation to take—and pay for—continuing education as they maintain their license. It’s not a one-and-done ordeal. While this tradeoff works well for many real estate agents who earn their money from commission, it doesn’t hold the same value for an investor whose profit is earned from flipping homes.
3. You Don’t Need a License to Buy or Sell Homes
In the Texas real estate market, unlike in many other states, lawyers rarely get involved in the process. Instead, house purchases are conducted on the standard contract forms developed by TREC. As a result, unlicensed individuals can represent themselves as a buyer, or they can sell their homes entirely without a license. If the main reason why you want to become an agent is to sell houses by yourself without paying that commission fee, you don’t need a license to do so.
4. You Don’t Need a Realtor License to Be a Property Manager or Find Tenants
Similarly, you don’t need to be a licensed real estate agent to be a property manager or to select tenants for any long-term properties you hold. This may matter less if you want to focus exclusively on flipping, but it can make your investment strategy more versatile.
5. Your Potential Liability Gets Higher With a License
Licensed real estate professionals have a bigger obligation to disclose details and be informed than unlicensed house sellers. Realtors are expected to know more signs of potential house problems and disclosure obligations.
That doesn’t mean unlicensed home flippers are unethical or try to hide things—what it does mean is that once you have a license, you are held more accountable to disclose details of a property and stay hyper-vigilant about potential problems. It can be a messy situation, and you may face more liability if prospective buyers think they have a reason to sue you.
6. There Are Other Ways to Access the MLS
Ultimately, you don’t even need to get a license to access an MLS, which may be your main motivation in the first place. Flat-fee brokerages are a popular alternative to paying a traditional real estate agent. With a flat-fee brokerage, you can pay them a flat amount upfront to list your property on the MLS. Depending on your choices, you might also have access to other services, such as professional property photography, showing and open house management, and pricing tools that make selling properties even easier.
Grow Your Business without Getting a License
If you want to flip homes in Texas, you don’t need a real estate license to do it. You don’t even need a real estate license to develop your pricing strategy, negotiate contracts, or list your properties on the MLS. You can cut down on costs and manage your business the way you want by choosing a flat-fee platform with all the services you need.
ListingSpark is a flat-fee brokerage service that allows you to manage all of your investments on your own. We offer easy, transparent MLS listing services. You can also purchase our add-on services and real-time analytics tools to find profitable properties, buy them, and then relist them after they’re renovated. Reach out today to see how our MLS listing options and real estate services can help you flip homes.
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