Should a Real Estate Investor Hold Their Own Real Estate License? (Part 4)

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By: Darin "Sid" Cameron, CRS
Tue, Aug 8th, 2006 4:58 pm

“I am brand new to this industry. I am going to be rehabbing homes and doing a little bit of property management. I am really confused about whether or not to become a licensed broker. I have passed my real estate sales person state test, but I will be owning my own property when I go to sell it. Any advice - pro-broker license or against broker license?”

Today is the fourth installment of this topic as we look at the advantages and disadvantages a real estate investor would have in holding their own real estate license (either as a salesperson working for a broker or as their own broker).

Yesterday I addressed the number one reason against doing this (expense). Below is number 2 and 3.

TOP 7 REASONS FOR NOT GETTING A REAL ESTATE LICENSE (#2-3):

2) FOCUS. Go back to #3 on the Reasons For. If (by chance) you have a full time job and are starting out rehabbing on the side, this is just one more process to learn and manage.

Because we’re talking about a state regulated businesses, mistakes aren’t as forgivable as a bad grout job. Even if you have the luxury of being a full-time rehabber, it can still be a distraction that keeps your rehab projects from reaching their full potential.

Truthfully there is a lot more to selling a home besides showing it- i.e. managing advertising resources, writing and managing contracts and all the things that have to be done in order to close, dealing with problem agents, dealing with problem buyers, keeping everything legal, dealing with the state, etc.

There’s also a lot more to managing a property than collecting rent- i.e. background checks, legally handling security deposits, dealing with 24 hour emergencies, keeping government agencies happy, etc.

For example, if a rental property’s furnace dies on a frosty 10 degree below zero Tuesday in January, are you able to drop everything else and get a new furnace installed that very day? If not, realize that the government agencies that regulate housing don’t care that you are a one person property management shop with a full-time job and no free time until Saturday.

If a tenant complains to the appropriate government agency that there’s been no heat for four days, you WILL have bigger problems (in some municipalities, think arrest warrants). So, if all you really want to do is go get your hands dirty rehabbing houses, focus on what you enjoy doing and find a professional(s) you trust to do the rest regardless of what those things are.

On this subject, there's an old saying in real estate, "If you spend your time doing the $5/hr tasks, all you will make is $5/hr."

When my wife was an unlicensed rehabber, she also ran a property management company because they had rental units as well. In particular, she had a 12 unit building in the city that she could never get (or keep) fully rented. One of the biggest problems she had as a property manager was that the building wasn't located anywhere near her home, office, other rental properties, or the homes they were rehabbing- so any visit to the building killed an hour of her day (or more) driving to and from the building.

As you can imagine, showing the property 5-6 times a week to renters was a real drag on her schedule. Eventually, she broke down and hired another property management company to deal with getting renters and collecting rent while she continued to deal with maintenance and upkeep issues. The property was filled within a couple of months and finally became profitable once she let go of the lower-end tasks she didn't enjoy doing.

3) LEGALITY. Being a licensed agent/broker means following a whole lot of rules and regulations that are not required should you decide to sell/manage your properties on your own (as an unlicensed person) or by hiring someone else.

Although I encourage you to conduct business in an honest and ethical way regardless of how you decide to do business, I can tell you from experience that an open house doesn’t go by where someone doesn’t ask me a question I can’t legally answer as a licensed agent.

But an unlicensed person isn't bound by the laws of real estate licensing. I know a whole lot of rehabbers and builders who are unlicensed for this very reason (including some who have previously had licenses).

Along this topic, remember as a licensed salesperson or broker you are responsible for reporting and dealing with the State Real Estate Commission and (if a member) the Local Association of REALTORS which both have the right to audit your business should complaints be registered with them.

The same holds true with any franchise you might decide to do business with as well. Discuss what being a brokerage really means from a legal standpoint with a good attorney to know more.

More of this list tomorrow...