New house flippers have a ton of questions about buying, selling, and renovating a home. A few weeks ago, Katie D. asked us this question on Facebook:
“I want to start a business flipping homes. Do you think having my real estate license would be a good asset to have for a business like that? Or do I allow other people to take care of that part for me?”
It’s a great and common question among people who buy homes to spruce up and sell a short time later. In 2016, the number of flipped homes (bought and sold within 12 months) reached 193,009 or 5.7% of all single-family homes and condos sales in the United States, according to ATTOM Data Solutions, a property data group. That’s the biggest percentage since 2006, the market that preceded the Great Recession and housing crash.
Clearly, flipping is hot. But should a flipper invest time and money into becoming a real estate agent, too? We say yes, and here’s why.
1. Develop a solid foundation
When beginning a flipping career, it’s a good idea to be the most rather than the least prepared. Studying for a real estate license tests lays a “great foundation” for understanding for property flippers of all the details, vocabulary, and forms needed to buy and sell a home.
“Most states have several disclosure forms required by law,” says Bill Gallagher, a Charlotte, NC real estate agent who’s taught pre- and post-licensing courses for 25 years. “The national exam gives flippers confidence that they’ve mastered the material.”
That material includes information on disclosure forms, zoning challenges, financing details, and Home Owners Association regs, all of which is critical information attached to buying and selling homes.
“Everyone thinks that real estate is easy,” Gallagher says. “It’s the opposite. Having knowledge of what can go wrong—all the liability issues—can really help reduce your risk.”
2. A real estate license for property flippers means access to the MLS
When buying and selling a home, it’s all about the Multiple Listing Service (MLS), the place to go for accurate information on properties for sale and properties sold.
Unlike some online listing sites, the MLS status data “is accurate and verifiable,” Gallagher says. “Other sites aren’t reliable 100% of the time. You always have to go back to the MLS.”
The catch is: You have to be a real estate agent and a member of a national, state, and local real estate associations to gain access to the MLS. If you’re not an agent, you’ll have to pay one—sometimes as much as $1,000—to list your property on the service.
If you flip several properties, those fees add up and eat into profit.
3. Receive brokerage support
A real estate license for property flippers means they can work in a brokerage, which has several advantages. First, brokers provide invaluable advice and support to newbie flippers.
“Say to the broker, ‘Help me. Lead me. Guide me.,’ ” Gallagher says. “It’s a great way to learn the business and get support.”
Also, brokerages come with a slew of agents who can bring buyers.
“Exposure is key,” Gallagher says. “Many brokers say, ‘Let’s try to sell it in the firm first.’” That could mean, allowing agents to bring clients during a “coming soon” period before the property officially is on the market. It also could mean you’ll have advance notice of properties coming to market, which could be your next flip.
4. Pay yourself a commission
You’ll always have to pay the agent who shows up with a buyer a 2% to 3% commission. But a real estate license for property flippers means you can represent your own property; so you can either save the money or pay yourself a listing commission.
Some brokers—not all—will let their agents pay themselves or eliminate the listing commission on sales of agent-owner properties. In May, the median price of a home was $252,800, according to the National Association of Realtors; so if you act as your own listing agent, you’ll save $5,056 to $7,584, which could be the difference between making a profit, breaking even, or losing money on a flip.
5. Earn while you wait
Many months go by between identifying and buying a property, fixing it up, and selling it for a profit (hopefully). Real estate agent/flippers can earn money buying and selling other people’s properties while they’re working on their own. And since real estate agents often work nontraditional hours—nights and weekends when clients are available—they can manage a construction site that typically starts at 7 a.m. and knocks off at 3 p.m., and earn commissions on real estate deals during off hours.
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