House flipping reality shows dominate the home improvement networks these days. They show amazing before and after shots and reveal the headaches that go along with renovating a problem house. Inspired viewers may begin to feel the itch to try it themselves and ask themselves questions like, “how would I get the investment capital?” or “do you need a real estate license to flip houses?”
The latter question has a straightforward answer. Legally speaking, a real estate license is not required of the person who owns the renovation project.
However, the help of a realtor can keep you from making costly mistakes and give you advantageous market insights.
Should I Get a Real Estate License to Flip Houses?
This depends on the level of involvement with house flipping. ROI has been declining in the last few years (40.6% return with an average profit of $62,900) so it may not be the best time to jump in as a full-time job.
For occasional projects, it makes sense to hire realtors as needed. It may be tempting to flip a house without a realtor, but this is not wise. What you don’t know might hurt you.
Prior to the purchase, a realtor’s market research know-how and insights can confirm if the property is worth the investment or not.
When the project is underway, a realtor can provide guidance on such matters about if permits are needed for demolition, if disclosures are required, if FHA laws must be followed, etc.
Realtors play a key role in making the right decisions along the way throughout the entire process.
For those who want to make a career out of it and sell multiple properties a year, having a real estate license may end up being more cost-effective.
Biggest Benefits of Getting a Real Estate License
The excitement of turning a profit on that first flipping project may be habit-forming to the point that it becomes a career. So what all is involved in becoming a real estate agent?
The requirements vary depending on the state, but in general, a course must be taken and the official exam must be passed. Next, the license is activated through the state commission website. A grand total for these steps falls between $500-$1000.
Once this is done, the doors open to take it a step further and make it official. A licensed real estate agent can become a member of the National Association of Realtors and/or join a brokerage.
So why spend up to $1000 to become licensed?
Won’t Have to Pay Agent Commissions
Hiring a real estate agent means they get paid 5%-6% of the sale price.
So say a profit was the 2019 average of $62,900 on a house that sold for $218,000. Commission on that sale would be $13,080. The commission takes 21% of the profit.
$13,080 is more than ten times what it costs to become a licensed real estate agent.
Have a Deeper Understanding of Real Estate Regulations
To protect the consumer, there are laws surrounding both home construction and the home buying process.
Permits are needed for some demolition or addition projects. Once a home has been renovated and inspected, disclosures may be required.
Examples of disclosures are a drainage issue, any property easements, if the home was once a site for methamphetamine production, etc.
Laws against discrimination are also in place to protect the consumer and a real estate agent is responsible for compliance with these policies.
Being a licensed real estate agent means being educated enough to make judgment calls during various steps of the flipping process from construction to sale.
Being licensed opens doors to making connections in the construction industry. Word of mouth is a highly effective way to find a reliable contractor, and other realtors will give vetted referrals.
Home inspectors also work with realtors on a routine basis. Using a reputable home inspection service helps the deal go right.
In a perfect world, all contractors and inspectors would be honest and competent, but some will cut corners. Being part of the realtor community gives you a valuable resource in finding those who will do the job well.
Greater Trust from Potential Buyers
The fact that real estate agents are required to know how to do a home sale properly gives them clout. Buying a house, especially for the first time, can be scary.
People want peace of mind that they are doing everything right and getting guidance they can trust. A competent realtor encourages consumer confidence.
Being both the project manager of the flip and the realtor has the potential to make a great impression on buyers. Wearing both hats means being able to answer any and all questions about the house and perhaps close the sale faster.
Access to MLS (Multiple Listings Service)
Only real estate agents have access to the official property database known as the MLS. This enables a professional home flipper to jump on new opportunities as soon as they are listed.
It can also be used as a research tool to stay up to date on how the market is faring.
Can I Still Flip Houses Without a Realtor License?
Flipping houses does not require a real estate license. But as seen on any house flipping reality TV show, any number of issues can come up when doing a home renovation project. Some of these occurrences will need to be disclosed to the buyer. A realtor is key in making sure things are done properly.
Making money by flipping houses has risen in popularity, so it’s likely that more realtors are gaining experience in selling these properties. A realtor who has sold a flipped property before may know things the average realtor does not.
Flip a house without a real estate agent, but don’t flip a house without a licensed realtor.
One Step Closer
We’ve seen flipping done thousands of times on TV. Asking the right questions is the first step in getting off the couch to do your first project and eventually show off your before and after photos on social media.
Want more information? We answer even more questions with our House Flipping Business Plan!
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