When considering whether or not to get a real estate license for flipping houses, it’s essential to weigh the pros and cons. Statistically, approximately 245,864 single-family homes and condos were flipped in the United States in 2020, accounting for 5.9% of all home sales that year, according to ATTOM Data Solutions. With such a significant number of properties being flipped, it’s crucial to understand how having a real estate license might impact your house flipping endeavors.
From a legal standpoint, you don’t need a real estate license to flip houses. However, obtaining one can provide you with certain advantages, such as access to the Multiple Listing Service (MLS) and the potential to save on commission fees. On the other hand, a real estate license also comes with costs, such as licensing fees, continuing education, and adhering to ethical obligations.
In conclusion, while a real estate license isn’t a requirement for flipping houses, it can be beneficial depending on your individual circumstances and goals. Weighing the advantages and disadvantages can help you decide if obtaining a license is the right choice for your house flipping journey. Remember, success in this industry is possible with or without a license, so long as you do your research, plan carefully, and execute efficiently.
The Benefits of House Flipping with a Real Estate License
Real Estate Knowledge and Experience
Having a real estate license provides you with the knowledge and experience necessary to navigate the intricacies of the housing market. In 2020, the average gross profit for flipped homes in the United States was $62,300, according to ATTOM Data Solutions. With a real estate license or active under contract, you’ll be better equipped to understand market trends, property values, and how to find the best deals, potentially increasing your profit margins.
Access to the MLS
The Multiple Listing Service (MLS) is a valuable resource for finding properties that are not widely advertised. As a licensed real estate agent, you’ll have exclusive access to the MLS, giving you a competitive edge in sourcing potential properties to flip. This access can be particularly advantageous in competitive markets, where finding the perfect property can make all the difference.
Added Source of Income
A real estate license can also provide an additional income stream, as you’ll have the opportunity to work with buyers and sellers in transactions unrelated to your house flipping business. This supplementary income can help support your house flipping ventures, particularly during slow periods or when flipping projects are taking longer than anticipated.
No Agent Commissions
One significant advantage of having a real estate license when flipping houses is the ability to save on agent commissions. By representing yourself in the purchase and sale of properties, you can eliminate the need to pay a buyer’s or seller’s agent, potentially saving thousands of dollars in the process. For example, if the average commission rate is 5%, on a $200,000 property, you would save $10,000 in commission fees.
Extended Network
As a licensed real estate agent, you’ll naturally expand your professional network, which can be invaluable when flipping houses. Your connections can provide insider information on potential deals, as well as recommendations for reliable contractors, inspectors, and other professionals needed to complete a successful flip.
More Credibility
Finally, having a real estate license lends credibility to your house flipping business. Clients, partners, and investors are more likely to trust and work with someone who has demonstrated their commitment to the industry through licensing and continuing education. This increased credibility can lead to better opportunities and a more successful house flipping career.
The Drawbacks of House Flipping with a Real Estate License
While there are many advantages to obtaining a real estate license for house flipping, there are also some drawbacks to consider. Here are some potential cons to keep in mind:
Licensing Costs and Time Commitment
Becoming a licensed real estate agent requires an investment in both time and money. Depending on your state, you may need to complete 60-150 hours of pre-licensing courses, which can cost anywhere between $200 to $800. Additionally, you’ll need to pass a state exam, pay for licensing fees, and potentially join a local real estate board. These costs can add up, and the time spent obtaining a license could be spent on other aspects of your house flipping business.
Continuing Education Requirements
As a licensed real estate agent, you’ll be required to fulfill continuing education requirements to maintain your license. These requirements vary by state but typically involve completing a set number of hours of coursework every few years. This ongoing commitment can be time-consuming and may take away from your house flipping endeavors.
Potential Conflicts of Interest
As a licensed real estate agent, you have a fiduciary duty to act in the best interest of your clients. This responsibility could potentially create conflicts of interest if you’re also flipping houses. For example, if you come across a property that would be perfect for a client but also a great investment for your flipping business, you may face ethical dilemmas in deciding how to proceed.
Increased Liability
With a real estate license, you may face increased liability, as clients and other parties can hold you to a higher standard due to your professional status. This heightened liability could result in potential legal issues, so it’s essential to consider the risks before obtaining a license for house flipping purposes.
While there are some drawbacks to having a real estate license when flipping houses, it’s crucial to weigh these cons against the potential benefits. Understanding the challenges involved can help you make an informed decision on whether a real estate license is the right choice for your house flipping business.
Acquiring a Real Estate License for House Flipping Success
If you’ve decided that obtaining a real estate license could benefit your house flipping business, the next step is to understand the process involved. Here’s an overview of the steps you’ll need to take to become a licensed real estate agent:
Research Your State’s Requirements
Real estate licensing requirements vary by state, so the first step is to research the specific rules and regulations applicable to your location. Generally, you’ll need to be at least 18 years old, have a high school diploma or equivalent, and meet other eligibility criteria set by your state’s real estate commission.
Complete Pre-Licensing Courses
Once you understand your state’s requirements, you’ll need to enroll in and complete the necessary pre-licensing courses. These courses typically range from 60 to 150 hours, depending on the state, and can be taken in-person or online. Costs can vary between $200 and $800, so it’s essential to budget for this expense.
Pass the State Licensing Exam
After completing the required coursework, you’ll need to pass a state licensing exam. The exam will cover both national and state-specific real estate laws and practices, so thorough preparation is vital. Many pre-licensing courses offer exam prep materials to help you succeed. Exam fees can range from $50 to $100, depending on the state.
Apply for Your Real Estate License
Once you’ve passed the state exam, you can apply for your real estate license. This process typically involves submitting an application, providing proof of pre-licensing education and exam passage, and paying any applicable fees. Some states also require a background check and fingerprinting as part of the application process.
Join a Real Estate Brokerage (Optional)
While not a requirement for flipping houses, many newly licensed agents choose to join a real estate brokerage. This decision can provide additional support, resources, and mentorship, which can be particularly beneficial when starting in the industry.
Stay Up-to-Date with Continuing Education
Finally, maintaining your real estate license will require ongoing education. Most states require real estate agents to complete a specific number of continuing education hours every few years to keep their license active. Staying current with these requirements will ensure that you remain in compliance and can continue to utilize your license for home purchasing flipping purposes.
