As a real estate investor, I got asked many times by people: do real estate investors need a business license? Well it depends. There are several types of licenses in real estate that could be useful, and you can either hire someone to do the work for you so you don’t need a real estate license at all, or you can get the licenses yourself and enjoy some benefits of owning the licenses yourself.
In this article we’ll discuss several types of licenses in real estates and cover some reasons why you may or may not need those licenses.
These licenses include:
- Agent license
- Contractor license
- Mortgage license
- General business license
Do Real Estate Inventors Need a General Business License?
A general business license is required to conduct business in most states. In the real estate industry, you may need it because profiting from your real estate investments automatically makes it a business.
However, I recommended that you get one as it legally protects you against any business clause. Also, it makes you eligible to do business, not just in the real estate industry but in other business environments.
Moreover, getting a general business license is not difficult. You can easily get a business license if you work with an attorney in your state or area, and have him help you through the process. It’s not very expensive either.
Of all the licenses a real estate investor may need, I think the general business license is the most necessary if you want to start real estate investing, as it safeguards you against business clauses and whatnots.
As it is with every other business, a general business license makes you eligible to partake in real estate deals in your state or city.
However, if you’re just starting in the real estate investment industry, you should focus more on closing good deals. I won’t worry too much about getting a general business license if you’re just getting started.
What is a Real Estate License?
A real estate license, or a real estate agent license, is the license that allows real estate agents to sell, broker or rent real estate to potential buyers or renters on behalf of a real estate brokerage legally. The qualifications or responsibilities of a real estate license may be different in each state.
The question is, do real estate investors need a real estate license?
For real estate investors, one of the most useful benefits of owning a real estate license is to list the property on the MLS. There you’ll find the largest amount of property data and potential buyers. With a real estate license, you can list your property on the platform, or you can hire a licensed real estate agent to list it for you. This will likely cost you 6% of the sale price, 3% to your agent and 3% to the buyer’s agent. While you likely won’t avoid the 3% owed to the buyer’s agent, you can save the 3% you normally would pay your agent.
Do Real Estate Investors Need a Real Estate License?
Many real estate investors might want to get a real estate agent license so they can save the commissions paid to the real estate agent.
Like most investors, you may want to keep the 3% commission for yourself that would normally go to your listing agent. The same also holds for real estate investors who may not want to flip or fix their property but wish to buy and keep it or use it for rental purposes. They’ll need a licensed real estate agent to do their listing if they don’t possess an agent license. Most investors will prefer to get their own license and save the 3% fee rather than pay any licensed real estate agent.
Aside from the monetary benefits, most investors get their real estate agent license because they want to be privy to the data and information on the MLS. The wealth of info and data you’ll find there can help you make good investment decisions.
On the other hand, getting a license can cost you time and money. Rather than going through the hassle to get one, some investors might prefer to use the services of a licensed real estate agent. Leveraging a licensed real estate agent is as good as having a keen eye in the real estate market. In the end, it all comes down to what works best for you.
Do Real Estate Investors Need a Contractor License?
A real estate contractor license is fairly common among real estate investors who do house flipping. This contractor license allows you to liaise with other contractors and participate in contract deals like house fixing and flipping.
Whether you need the contractor license as an investor comes down to your investment intention. I’d recommend not getting a contractor’s license because the most efficient use of your time with fix & flips will be to hire a contractor. I even tell my investors who are also contractors to hire out another contractor. They can make more money by moving onto their next deal then they can doing the contract work themselves.
However, if you’d like to fully understand the ins and outs of contractor work, as well as save that money on the rehab, then you can certainly get your contractor license.
Do Real Estate Investors Need a Mortgage License?
A mortgage license is typically recommended for real estate agents or realtors who want to broker mortgage loans or engage in any mortgage business that requires signings and documenting.
Real estate investors rarely need a mortgage license as this license is typically for people who are looking to get actively engaged in brokering mortgage loans. If this sounds like something you’ll do in the long run, you should consider getting a mortgage license.
What Licenses Do You Need to Start Investing in Real Estate?
Now that we’ve discussed the different types of licenses in real estate investing, you can decide which ones are right for you. If you’re just starting out, you may not need to worry about any of them. The business license is the most important, but that’s not essential until you’ve found a deal and are starting the process of flipping it. Here at The Investor's Edge, we help each borrower set up an LLC for each flip that they do.
The next most important one is probably the real estate license. The ability to sell your own property, as well as get access to more information on the MLS can be appealing. Again, it’s not essential, but can be helpful.
I don’t recommend getting a mortgage license or a contractor license.
I hope this helps you get a better handle on the licenses involved in real estate investing!
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