Last Updated on August 22, 2019 by Mark Ferguson
When I became a real estate agent in 2001, I was not a real estate investor. I focused on selling houses for and to people, but when I became an investor the license was a huge help. When I started investing in rental properties my real estate license saved me thousands of dollars on commissions and I found more deals. Now that I flip houses and buy rentals the license saves me hundreds of thousands of dollars a year in commissions. The license also allows me to find many more deals because I can act faster and pay more than other investors.
How can you become an agent?
I discuss how hard being a real estate agent in this article. You must take pre-licensing classes and then pass a test in most states to get your real estate license.
My assistant got his license through Real Estate Express, which also has a great licensing program in all 50 states. Real Estate Express also has some of the lowest prices I have seen, although I have not researched every real estate school.
Why becoming an agent saves money
Being a real estate agenthas helped me tremendously in my owninvesting strategy. I havepurchased 20 long-termrental properties, and I am makingat least15 percentcash-on-cash returns on all of them. One of the reasons I amearning such high returns is thatI save thousands of dollars on each transaction by being a real estate agent. I also do 20 to 30 fix and flips per year and save thousands of dollars on each of those transactions as well. I estimate that being a real estate agent saves me over $100,000 in commissions on my flips and rentals per year. That does not include the profit I made on deals that I would not have gotten if I were not an agent.
How can you save on commissions?
If you plan to buymore than one or two rental properties peryear get your real estatelicense! If you do nothing else with your license except buy your own rental properties, youwill save thousands in commissions peryear. On everyrental propertyI buy, I save a ton of money because I ampaid a commission as the buyer’s agent. The commission may be 2, 2.5, or 3 percent per deal, but in the end that adds up to a lot of money. If you buy three houses peryearwith anaverage price of$100,000, being a real estate agentcan save you $7,500 to $9,000 peryear.
If you fix and flip those houses, you will more than double your savings because you will save a commission when you sell the house as well. On a recent fix and flip, I bought the home for $105,000 and earned a threepercent commissions as the buyer’s agent. I am going to fix and flip this property and most likely sell it for $160,000. When I list the home, I will save another threepercent commissionthatI would have had to pay another agent. On this one deal, I will save $7,950 because I am a real estate agent.
How can you get better deals?
There are many other advantages to being an investor with a real estate license. Being an agent allows me to get more deals as well. Here are some other ways that having a license is a huge advantage:
Access to MLS
As a real estate agent, you haveaccess to MLSand cando your own searches for properties without having to rely on an agent to find you the right deal. Having access to MLS gives investors a huge advantage becausethey do not have to wait for an agent to send them listings. I search for listings at least five times a day, and I routinely make offers on the same day a house is listed. An agent can also easily pull sold comparable information from MLSto calculate values on properties. Calculating accurate valuesis one of the most important things an investor needs to do in order to be successful.
Networking
As a real estate agent, you can fraternize with other agents and people in the real estate world. The more people you know in the business, the more people you can tell that you are looking for property. Sometimes the best deals are those that are brought to you, not the deals you find yourself. Let everyone you know that you are looking for investment properties and you never know what will turnup. I have purchaseda couple of properties that were never listed on the MLS because of my contacts in the business.
Taxes
TheIRShas limits on how much money you can deduct on rental properties if real estate is not your primary job. If real estate is your primary job, you may be able to deduct many more expenses. For more details, please see the IRS tax code.
Reputation
If you are a real estate agent that does manydeals, most agents will know who you are. If you bring a good reputation for getting deals done, sticking to your word, and being dependable, other agents will want to work with you on tough deals. Many properties that we buy have major issues and are tough to sell. Other agents know me and know I will do my best to get the deal done.
Offer price
I already mentioned the commission savings on investment properties, but there is another advantage besides just the money savings. If I save $8,000 in commissions on a fix and flip deal, I can buy that property for $8,000 more than an investor who does not have their real estate license can. That savings allows me to pay more money and get more deals than other investors while still making a profit.
How much money can you save?
This year I will come very close to fix and flipping 30 homes. That means I will sell 30 houses that I flipped, I will buy close to 30 houses, and I bought a few rental properties as well. Here is how much I think I have saved this year alone:
- Selling 30 flips I save 3 percent commission on each flip because I can list the home, instead of another agent. My average flip sells for $225,000, which equals $202,500.
- I will buy close to 30 flips, but not all of them are MLS deals. If I assume half of them are MLS deals and I buy them for $125,000, I save $56,250.
- I will buy three rentals totaling about $500,000 which saves me another $15,000.
- I will save over $270,000 by being a real estate agent this year on my own deals alone.
I have a great set up with my broker where I get 100 percent of the commissions and pay him a flat fee every year. If you have to pay your broker a split of your commissions you may not save as much money.
How else can you make money?
I ambiased, but I think being a real estate agent is one of the best opportunities out there. There are many forms of income in the real estate business. If you are motivated and dedicated to making it in the business, you can make serious money. I willnot go into details in this article, but here are some of the different areas that can generate income.
Property management
If you want to bea serious investor, you will want a property manager to handle your rental properties at some point. If you start your own property management business, you can manage your properties and other properties as well. Not only are you saving ten percentper month on your rent coming in by doing your own management, but you can also make extra cash by managing other investors properties.
Retail Sales
This is the most common way to earn money as an agent. Retail sales involve listinghouses for private sellers andselling homes to buyers. If you are dedicated and treat this as a real job, you can make a lot of money. Many agents make over $100,000 peryear and the very best make much more than that.
Commercial Sales
Commercial real estate requiresmuch more experience and knowledge than residential. It is difficult to break into commercial unless you start with a commercial firm thatcan mentor you. Experienced andsuccessful commercial agents can easily make hundreds of thousands of dollars peryear.
REO Sales
REO properties have been foreclosed on and they have gone back to the bank. REO agents list and manage these homes for the banks. Agents can make a very lucrative living if they work with the right banks. It can take years to build up your business and the supply is determined by how many homes are foreclosed on. REO agents are not allowed to buy their own listings, as it is a conflict of interest.
Short Sales:
Short saleshomes are listed by private sellerswhoare selling the home for less than they owe the bank. There is a huge market for short sales and many agents make a great living specializing in this field. It takes a lot of patience and diligence to close a short sale since the banks have many requirements and they can take months to approve a short sale.
Broker Price Opinions (BPOs)
A BPO is a one to three-page report used to determine value on properties but is not an appraisal. Licensed agents can complete BPOs for various clients including banks. The agents are usually paid between $30 and $80 per order. Some agents make a living only completing BPOs. It is a great way for agents to supplement their income while learning the business.
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Conclusion
There are many ways to make money as a real estate agent. Even if you just want to buy or sell a few of your own listings each year, I believe becoming a real estate agent is well worth it.
