Home flipping is big business. TV shows are devoted to the art and strategy of turning fixer-uppers into profitable turn-key properties and even inexperienced investors consider the potential wealth to be found transforming properties.
As popular as the practice has become, however, flipping properties is actually a highly technical process, and it takes expertise to do well. That’s why, faced with growing barriers to entry, more real estate investors are considering licensure to help them navigate the process.
Beyond Traditional Buying
To flip a house successfully, an investor needs to do several things. They need to be prepared to navigate the home buying process, know what to look for in a property, and they need either serious connections to contractors or the ability to do some of the necessary renovations themselves. Finally, they need to know how to time the resale and bring the property back to market to maximize value.
Considering how intimidating many people find buying a house to be in the first place, that’s a lot to take on. It’s certainly not for those with a limited income or no prior experience purchasing a home.
Avoiding The Scams
A decade ago, when home flipping was a financial strategy and not yet a form of public entertainment, prospective ‘flippers’ needed to navigate all of the above hurdles, but they did have things slightly easier – there were far fewer scams lurking out there, waiting to trap novice investors. Former reality star Scott Menaged of “Property Wars” epitomizes this problem, having repeatedly lied to banks to extend his empire, but problems can emerge at many points along the process.
One major concern for new investors right now is the looming recession. With the market reaching its saturation point and threatening to drive the flipping industry into retreat, new investors could be marks for sellers trying to offload money traps before the economy turns.
It’s with anxiety about such risks, as well as in pursuit of other advantages, that investors have begun considering pursuing real estate licenses. Others wonder if the license is worth the effort.
The Advantages Of Licensure
Benefits notwithstanding, it’s true that becoming a real estate agent is a serious undertaking, but earning a license can give investors an inside track from the start. In fact, just learning the language used among agents could give investors a serious edge; real estate relies heavily on jargon and those technical terms can make it hard for buyers to understand what they’re getting into when looking at listings or talking to other agents. On the flip side, the ability to speak the language can give investors a strategic advantage by demonstrating that they aren’t easy marks for fraud. Industry speak has always existed to draw those boundaries. Speaking the language isn’t the only advantage, though.
Another reason investors have begun considering getting real estate licenses is that having a license is the easiest way to gain access to the multiple listing service (MLS), the master listing system containing all the property information. MLS access can help investors determine whether a property is a good buy, what other opportunities might be on the horizon, and when it’s a good time to put properties back on the market. There are other ways to get MLS access, but if you want to avoid dealing with a middleman, getting a license is the best strategy.
Finally, and perhaps most importantly for investors, becoming a real estate agent means greater earnings for home flippers. Without a license, investors lose about 6% of sales to agent commissions every time they sell, and that’s money they could retain if they had the skill and authority to navigate that process end-to-end without an outside agent. Proceed to execute a few additional deals on the side as agent but not investor, and having a license is also a way for investors to generate capital for their business.
Not every investor will find having a real estate license to be worth the additional effort and the time investment – there’s more than one way to navigate the process and each person needs to leverage their skills as best suits them. For those with fewer renovation skills, though, having a license could be financially and strategically advantageous. There’s a lot of money on the line, and becoming a licensed agent can help investors play their cards right when the stakes are high.