Summary: Should I get my real estate license for investing in real estate? We get asked this question a lot. Getting your real estate license can offer many benefits, depending on your individual goals and situation. Read on to see if getting your license could benefit you in your investment journey
[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
Many people ask the question, should I get my real estate license for investing in real estate?
The answer in our opinion is: it really depends on your goals.
For most, it probably doesn’t make sense. But there are some situations where it may make sense to get your real estate license.
Below, we cover some of these reasons.
If You are Claiming Real Estate Professional Status
If you aren’t familiar with Real Estate Professional Status (REPS), you can read more about it HERE.
In brief, it’s a valuable tax status that enables you to shelter W2 or 1099 income and significantly reduce or eliminate your federal income taxes and in some cases, your state income taxes as well.
In order to meet the criteria for REPS, there’s a requirement to meet a certain number of hours. You need to spend more than 750 hours in real estate and you have to spend more hours in real estate than any other profession.
Getting a real estate license could help you meet both criteria. If you choose to do something in real estate and you spend enough hours doing it, it could potentially help you meet the criteria.
In some cases, the hours you spend obtaining and maintaining your real estate license could potentially be used to meet the hours requirement. I say “potentially” because this part is dependent on your accountant. In our experience, some accountants give you credit for these hours, others don’t.
No matter what, all of the accountants we have spoken to agree that you need to take it seriously. If you are claiming real estate is your profession and you’re doing more of it than say your job as a doctor, then you need to really be active as a real estate agent.
If You are Going to Represent Yourself on Deals (Properties You Buy and Sell)
Another reason it might make sense to get your real estate license for investing in real estate is if you are going to represent yourself on deals.
The agent fee is typically 3% to the buyer’s agent and 3% to the seller’s agent. This fee is usually only paid by the seller. So if you are buying a rental property and you represent yourself, you could earn a 3% commission.
As a seller, you could save 3%. The reason is that you would only be responsible for the share paid to the buyer.
This can represent significant savings and may make the time and money spent getting and maintaining your license worth it.
With that said, we would caution anyone who is getting their license for this reason alone. The downside is the fact that you are representing yourself on these deals.
It’s like representing yourself in court without a lawyer. It’s sometimes better to have the counsel of another person weighing in on a deal. As well as having someone who can negotiate on your behalf.
We think in many cases, it’s beneficial to have someone who is more objective and not emotionally invested in the deal representing you.
If You are Going to Build a Real Estate Business
This last reason is, in our opinion, the best reason for getting your real estate license for investing. That’s if you plan to build a real estate business. There are many examples of real estate businesses.
The most obvious example of a real estate business is to become a real estate agent, where you represent buyers and/or sellers.
For example, we have a doctor friend who got her real estate agent license to help other doctors who are relocating to her local market. She can help with the usual questions someone might have when moving. Which includes: the best neighborhoods, the best schools, etc. Doctors choose to work with her because they are comforted by the fact that she is a fellow doctor who understands their unique needs and concerns.
A variation of this is to focus on working with investors. We know someone who has done just that. They took what they learned from our Zero to Freedom and Accelerating Wealth courses. They bought investment properties themselves and then leveraged what they learned to help others find investment properties.
If You Start a Property Management Company
Another idea for a real estate business is to start a property management company. In many states, in order to become a property manager, you have to get your real estate license.
Many of our students are self-managing their rental properties. In turn, they have gained considerable experience as property managers. Some have developed expertise in managing long-term rentals. Others have gained considerable experience with short-term rentals. Some have become experts at both.
Since you already have learned how to manage your own properties, it’s relatively easy and seamless to add someone else’s properties. You already have all of the systems for leasing your unit, and screening tenants for long-term rentals. For short-term rentals, you already have your short-term rental software set up. As well as your people and systems in place for cleaning and making repairs.
Key Takeaways
There are many other potential real estate businesses you can start with a real estate license. If any of these align with your real estate goals, getting your license could be of great benefit to you. We’d love to hear from you about how you’re using your real estate license!
Have you found a way to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD Facebook page and join our Physicians (for MDs or DOs only) or Professionals group!
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