If you want to flip houses professionally to make a profit, you know it's a difficult process to master. Margins can be razor-thin, allowing little room for error.
Such a complex process begs the question — do you need a real estate license to flip houses? The short answer is no, but that does not mean it isn't something house flippers should seriously consider.
There are some major benefits for real estate investors who choose to become licensed real estate agents, but also some drawbacks. Keep on reading as we'll explain both and give you a brief guide on how to approach licensing.
The Benefits of Flipping Houses with a Real Estate License
This brings us to the question of whether it's worth obtaining your real estate license in order to be a more successful house flipper. Although it’s not a requirement, you may decide that the benefits outweigh the costs, especially if you want to be a long-term real estate investor who flips houses repeatedly. Let's take a look at some of the advantages.
Knowledge and Experience
Flipping houses is already not a guarantee of profits, and it is even riskier if you lack knowledge of the real estate market and industry. Earning a real estate license means you'll learn the ins and outs of buying/selling real estate, making it easier to understand what potential buyers are looking for when searching for homes.
To pass the real estate licensing exam, you'll have to study the industry and learn everything from how a real estate transaction works to the legal and financial side of the business.
MLS Membership
A multiple listing service is a platform where realtors and brokers collaborate on real estate deals. It's a way to consolidate information about properties that are being sold and buyers who are interested.
With a real estate license, you can join this network and take advantage of more efficient pathways to finding buyers for your property. Relying on traditional listing sites can slow the process or prevent you from finding more suitable buyers.
Income Potential
House flipping may not always pay the bills, and it can be a very draining source of income with the amount of work required and the potential risk. If you have taken the time to go through pre-licensing courses, pass the exam, and obtain the real estate license, you are now a licensed agent who can help clients buy and sell houses.
This is a great option if you ever plan to slow down your house-flipping business or stop entirely and pursue a different real estate career. It’s a great backup plan if flipping properties doesn’t work out.
Saving on Real Estate Agent Commission Fees
If you are not acting as your own real estate agent, then your potential earnings will be decreased when you sell. Real estate agents must be involved in the sale, and if they are, commission fees will have to be paid to the buyer's agent and your own. Fees can reach up to 5% of the total sale.
As a licensed real estate agent, you will only need to pay the buyer's agent commission. By saving on these fees as a real estate agent, your earning potential increases from each sale.
Networking
You can gain access to a larger network of real estate professionals. Not only will you meet other real estate agents, but you can be introduced to appraisers, property inspectors, investment mortgage lenders, contractors, investors, and more.
Connections with these people can improve your house-flipping endeavors with greater knowledge, professional services, and long-term partnerships. Plus, simply knowing other licensed real estate agents can help you find more buyers through referrals, especially when your properties match the specifications of clients that other agents may know.
You can also join the National Association of Realtors to expand your network quickly.
Credibility
Simply put, a real estate license turns house flippers into more credible sellers. Buyers who are interested in your property will see you as more trustworthy as a seller because you have obtained your real estate license. Not only will you gain credibility with buyers but also with your network of agents, contractors, appraisers, and other industry professionals.
The Cons of Getting a Real Estate License to Flip Houses
Although there are many benefits to having a real estate license as a house flipper, there are also a few drawbacks. Weighing these against the pros is important when deciding if your real estate investing strategy would be strengthened by obtaining your license.
Time
Pursuing your real estate license can take a while, which is time that you are not spending working on the house you are trying to flip. First, there is the pre-license course that you have to take, which can range from 40 to 300 hours of time, depending on your state. Then, you will need to study for and pass the state licensing exam.
There may also be a post-licensing course in some states. Overall, you could spend a few months to almost a year pursuing your real estate license. The amount of time you’ll need to finish the course depends on your availability, so starting with online courses and studying hard can actually save you time.
Costs
The main obstacle to getting real estate licenses is the cost. You must cover the costs of all the courses, licensing fees, fingerprinting, and other processes before officially becoming a licensed real estate agent. In the United States, you may pay anywhere from $400 to well over $1000 just to obtain the license.
However, if you want to keep the license, there are additional ongoing costs such as brokerage fees, insurance, national membership costs, continuing education, marketing, and business expenses. Overall, the costs can be very high, and if it's all to support your house-flipping career, it may not be worth it.
How to Get a Real Estate License to Flip Houses
Since you do not need a license to flip houses, you can still profit with this investment strategy. However, you will not have the competitive advantages we mentioned. If you choose to pursue a license, here is the general process you have to go through.
- Take the appropriate pre-licensing course in your state
- Apply for the real estate license in that state and submit to a background check/fingerprinting
- Study for and pass the state exam
- Take a post-licensing course, if necessary in your state
- Get connected to real estate brokers if desired
- Take a continuing education course each year to keep your license
What about a contractor's license?
You do not need a contractor’s license to flip houses for a profit. However, just as a real estate education and license can help when flipping houses, so too can a contractor license. You could pursue a general contractor license to learn how to oversee the entire construction process, or you could pursue a specific trade to lower renovation costs for specific projects on a flipped property.
What else do you need to flip houses?
So, do you need a real estate license to flip houses? Not necessarily, but it can be helpful to be a real estate agent when you plan to flip a lot of houses. However, there are some other requirements, as well as some nice-to-haves.
- Financing – The right investment property loans can make your income goals more achievable. You can also save time with the right lender and start real estate investing sooner.
- Budget for upgrades – The flipping process requires extensive upgrades to distressed property, so you must have the resources to pay for them. Some types of loans, like hard money loans, require strong cash reserves upfront.
- Contractors – It’s important to have a good relationship with reliable contractors to help with upgrades. Another option is to become a licensed contractor to do some of the work yourself.
- Business license – A business license is not required, but house flipping as an LLC can have numerous benefits, such as personal liability protection and pass-through taxation.
