New investors almost always ask “Should I get my real estate license?” or “Should I become a real estate agent?” It's almost immediately followed up with a comment similar to…”I was talking to or I saw on TV and said… I don't need to be a real estate agent to be a real estate investor”. Most of the time, they'll add, “…in fact, it makes things more difficult for you as a real estate investor.” (Look at the head this noise is coming out of we'll address this subject in a bit.) Does this sound familiar? It makes me cringe when new investors who are hungry for knowledge are getting this kind of advice. These comments and attitudes are supported by the infomercials on TV announcing you can be successful without being licensed. This one subject ruffles so many feathers in my noggin. Let me share a couple of my mistakes and growing pains as a new investor. Remember when… I got started as an aggressive investor and really began to “see the light” (benefits) of buying houses, renting them, and letting somebody else pay for them.
Yeah, a little work here and there, but it sure beat the heck out getting paid $12.00 an hour to work an “off duty job” after hours. Off duty jobs for police officers were plentiful, especially those who had take-home marked patrol cars. Utility companies with projects on busy roadways loved having a police car with lights flashing to slow traffic and make a jobsite safer for their workers. Bad apartment communities would hire off duty police to patrol their apartment community to help get rid of the undesirables it worked. You must understand the environment I was involved in at the time. As a uniformed patrol officer, I was assigned and rode a very active and busy beat. It included the housing projects commonly referred to as “the bricks”. (The residents called it the “bricks” as well) Now, travel to my lifestyle at this time. Arrive for “roll call” at 11:45 p.m. and get off at 7:45 a.m. the following morning providing everything was in order. What kind of people are you dealing with during these hours? For the most part, we were dealing with” tax-eaters”. Most “tax payers” were horizontal (sleeping) during these hours. Yes, on occasion, you could find taxpayers working these late hours. My point is I usually dealt with folks who weren't very responsible. The Jerry Springer types and I was the problem solver. This resulted in many trips to the jail, along with many court appearances. If you locked somebody up, you ended up with a subpoena to go to court.
Well, this is where part of my real estate troubles began. Keep in mind, I was going to court almost every morning at am. Our courthouse is the busiest building in our entire state, as far as traffic count of people. A typical morning in court may involve me having to appear for 3 to 6 different cases, all scheduled for 9 a.m. For example, imagine being scheduled to appear in 3 different court rooms at the same time 9 a.m. You develop relationships with attorneys on both sides of the fence. There are attorneys representing “the commonwealth” (good guys) and there are other attorneys representing the bad guys. Many of these cases were discussed and remedied with simple solutions in what was called the “conference room” adjacent to the courtroom. If you'd developed a reputation as a good police officer with common sense, you were labeled good to the system among the attorneys.
Therefore, any kind of a “deal” considered for a defendant, the attorneys, as a professional courtesy, would usually ask for your permission on the proposed deal before running it through the system. I have no intention of rambling on about police work here. It's important you understand the environment my daily activities involved. In dealing with tax eaters on a daily basis, prosecutors, defense attorneys, and only the criminal side of the court system, a warped perspective of reality was almost a guaranteed harmful side effect to me as a beginner investor. I'm not quite sure how to describe it exactly, but after spending hours daily in the courthouse with attorneys, another court case didn't amount to a hill of beans. I was there already for hours every day anyway. Maybe your job and position puts you in a position of authority as well.
So, back to real estate I'm the new investor. I felt like Beavis and Butt Head. My light bulb went off and I realized I could benefit better for the long haul by focusing my after hours efforts on real estate investing instead of off-duty jobs. I began buying houses and renting them. I vividly recall in the beginning, my closing attorney at the time, Hank, would ask “Do you want title insurance for this property you're buying?” I interpreted his question almost as an insult. He doesn't know who I am. Remember, I'm a good cop, well respected, who's in court every day and with an understanding of how the system and attorneys work (or so I thought). My answer to Hank was no, I'm not wasting my money on title insurance. That's what I pay you for. I believed he was selling insurance for himself in case he didn't do a good job. My attitude was phooey on this money making scheme on his part. I'd simply go after Hank if he screwed up on my title exam. Needless to say, he was baffled and I was stubborn by displaying my Bullwinkle Syndrome (named after my little sister who is a know-it-all). I was just too stupid to realize there was a lot I didn't know about real estate.
So, as I purchased more properties, I discovered I could make more money and buy properties cheaper if I got my real estate license. The money part alone was enough to motivate me to enroll in the school and get my license. My objective was not education. The challenge was to become a real estate agent fast so I can buy properties cheaper by collecting commissions when buying properties for myself. Now here goes “Mr. Know It All” investor(me) enrolling in the grueling boring, mundane school for real estate agents. I didn't really need to learn this stuff. I just wanted to pass the test and get my license to buy houses cheaper. This school is designed to groom folks to pass the state's exam to become a licensed agent. Although I can't remember exactly, I'm guessing I had 30-40 properties at the time. I was already on the road to financial independence! Rude Awakening!!!!
Long story short, after the first class or two, I discovered how much I didn't know. Let's use the analogy to checkers and chess, the board games. Pay attention to this one. As a homeowner and having purchased several investment properties, I felt I was already qualified as a knowledgeable investor. Here's a simple version and getting to the point quickly. It ties right in with checkers and chess. They both use the same game board. I was a checker player. As a checker player, I'd see the veteran investors who are chess players. The checker player honestly believes they are a chess player too, because they own investment property just like the veteran investors. The new investor expects to be almost automatically accepted into the inner circle of veteran investors.
The checkers player tries to participate in a conversation with the chess players. The chess players are discussing strategies and techniques with phrases such as “how to make an extra $5,000 by moving the rook and bishop to a place behind the pawn.” The eager checker player, not realizing their own ignorance, asks the chess player “what's a rook?” or “What's a bishop?” The chess players look in amazement at each other in total disbelief and frustration. Inside their noggin, the chess players are saying “How can you discuss strategies or techniques with this bozo when he doesn't even know and understand the pieces and parts to the game.” The checker player immediately picks up on the attitude exhibited from the chess players as a selfish, “you're not allowed in this group.” Major, major miscommunication occurs.
The checker player is baffled and thinks the chess players are “clickish” and refuse to share any information about strategies and techniques. The real lesson learned is you must learn and understand the pieces and parts to this game called real estate investing before you can play effectively. After learning the pieces and parts, (rook, bishop, knight, pawn, etc.) and you happen across another group of chess players discussing strategies, you'll be in a better position to absorb the techniques because you already know the pieces and parts.
So, back to real estate school. Thank goodness I humbled myself enough to accept my discovery of how much I didn't know. Just because I could buy property and spend hours in the courthouse every day, didn't make me an expert. While in school, I discovered the importance of title insurance. Remember me blasting my closing attorney with an attitude if something is wrong with the title, I'd go after him? I was absolutely wrong! In our state, our closing attorney runs a title exam by researching courthouse records; however, there's a catch with real estate. You can legally own real estate without having the deed recorded! What? This is mind boggling.
For example. Billy Bob buys a house and his name is on his deed. Billy Bob gets married. Billy Bob wants to sell his house. You buy it by having him sign a deed over to you on the hood of your truck. Sounds proper, right? False, you've already set the stage for major mistake. Believe it or not, hiswife, whose name is not on the deed anywhere, must sign off also transferring title to you although her name is nowhere on his deed. Little things like this can be different in every state. I was shocked to learn this in real estate school. In just a class or two, I realized I was very, very, lucky nothing had blown up on me. I realized how much I didn't know, and how valuable and powerful education is with successful investing. Just a short time after completing this school, my wife wanted a bigger nicer home. I captured a deal involving an estate, purchased it, rehabbed it, and made it our home.
I purchased title insurance on this property because I finally understood the protection it offers. My attorney was thrilled I finally saw the light. This very same property, the heirs got into a pi#$%$ing contest, sueing each other and me for having purchased the house so cheap. In summary, this resulted in a lengthy lawsuit. Guess what? My title insurance picked up the tab of all of the legal expenses. We won only because the title insurance covered the legal expenses. Without title insurance, I would be holding the bag for all of my legal expenses even if I won the lawsuit, which we did. So after a couple of real life examples: Should you get a real estate license? Let's look at the benefits for you as an investor vs. the baggage some veteran folks say come with being licensed.
- Learning the pieces and parts of real estate.
- Ability to understand techniques faster because you have a solid foundation of education.
- As a buying tool, you'll have access to MLS, the database of all properties listed for sale by real estate agents. It's also a powerful tool to quickly learn market values.
- You may receive commissions on properties you purchase depending on the arrangement with your broker.
- As a selling tool, you may list your own properties on the MLS.
- Most communities require continuing education courses if you're licensed. Although many may say this is a pain, it's still education.
- You'll simply discover how much you didn't know.
- Powerful opportunity to have real estate agents work for you and put you at the top on their buyers list.
- What you learn in this school will stay with you your whole investing career. You'll be able to grasp new creative investing ideas faster because you already have a solid foundation to build upon.
- Keep in mind, as an investor, you'll be labeled a “professional” with or without a license. You are the one who decided to become an investor. If you are ever in any kind of lawsuit, including eviction court, you will be almost automatically tattooed a real estate expert simply because you are trying to act like one.
- Annual fees and licensing. (In my town it's approx. $850 annually, including errors and omissions insurance).
- You must disclose to your sellers you're licensed and buying for investment and/or you intend to make a profit from the purchase of their property. (This is the one a lot of anti-get-your- license folks complain about. What's wrong with it? It simply covers your butt.)
- Complaints of paperwork. For the most part, only if you are representing a buyer or seller is the paperwork cumbersome. It's cumbersome because you are their agent representing their interests. The forms to fill out are designed to protect both you and the consumer.
- If you're the buyer or the seller, most of the paperwork is gone because you're representing yourself. You must simply disclose you are licensed. So, the next time you hear someone say “You don't need a license to be an investor.”, look at the head the noise is coming out of. Do you want to be like them when you grow up as an investor? all of my mentors and investors I admired not only were licensed, but actually continued with more education to become a broker. If you're just getting started or you want to really begin cranking your investments, getting your license won't hurt you. I'm encouraging you to get the education not the license. But, how can getting your license hurt you?
If you plan on buying one property a year, it may not benefit you to have your license active. You may choose to escrow your license. If you plan on cranking it seriously and buy a few houses a year, having your license is a good thing. Remember the person who said having your license is a bad thing? Do you really want to be like that person when you grow up? I have my broker's license today and maybe one day when I slow down, I may escrow it to save $800 a year. Right now, it's still worth every single penny!
Enroll in school. Get the education. Knowledge is your power. Learn the pieces and parts. Varsity and Pro Level One on One Coaching Students (if not licensed or previously attended school) must go to real estate school after their second session before they can schedule their third coaching session. They're a little baffled and confused at first, but all are 100% in agreement attending the school is a definite benefit and advantage to their game plan for investing. The pieces and parts have been identified, explained, and it's time to start the investing game.