Why Being A Real Estate Investor is Better than Being a Real Estate Agent
If there’s one thing I’ve learned, it’s that real estate investors are constantly in an internal struggle to understand if they should obtain the real estate broker license or not. Reasons include:
- Access to the multiple listing service
- A better understanding of real estate documents and contracts
- A means to earn real estate commissions and deals that they purchase themselves.￼￼￼￼
Well I think these are all good motivations for obtaining a real estate license, the biggest drawback is that a real estate broker license requires the broker to put the consumer ahead of their own interest. They not doing so well by not disclosing the fact that the broker is not representing the clients interest, can open the broker to legal trouble and penalties through the states licensing board.
Investor trumps Broker Lifestyle!
With this being said, and as a broker for the last 12+ years, I’ve come to believe that it’s always better to be a real estate investor rather than a broker.
However, being both a broker and a real estate investor has great advantages but great risks.￼￼￼￼ it really comes down to understanding how passive your income is as a real estate broker versus a real estate investor.
For instance, a real estate investor has the ability to earn net worth or income in the following means:￼￼
- Rental cashflows
- Principal paydown of Mortgage
- Appreciation of property value
- Tax benefits for owning and renting real estate
- Benefit of inflation while having a fixed mortgage payment
None of these require time. It simply requires finding the deal, having the cash to purchase the deal, and managing the rental property properly.
On the other hand, as a real estate broker, you are required to perform the following:
- Obtain a real estate license with your state
- Take continuing education courses to maintain your license
- Pay fees to a real estate brokerage
- Split commissions with a real estate brokerage
- Find consumers interested in selling or buying a home
- Convert consumer into selling or buying a home.￼￼￼￼￼￼￼￼￼￼￼￼￼
- Maintain relationship with that consumer in order to obtain referrals or continue future purchase transactions.
Regardless, as shown above, being a real estate broker is simply a transactional business. The broker is always hustling for the next deal and that next deal may never close. Furthermore, there is much more of a degree of time commitment involved in order to get paid. Most of the time, commission splits are involved between managing broker and the real estate broker themselves￼￼.
Here’s the Best Way to Structure…
On the other hand, being a real estate investor who is also a real estate broker is really the best business structure. As I’ve stated though, it also host the most risk because of the fiduciary duty required to the consumer. These advantages include:
- Access to the MLS for the purpose of obtaining investor purchases as well as provide consumer properties for sale.
- Ability to make commissions on your own purchases.
- Having the ability to meet the IRS definition of a qualified real estate professional that super charges your tax benefits.￼￼￼￼￼
Again, properly disclosing that you are a real estate broker who is representing his or her own interests as an investor is the most critical piece. This typically requires a no agency agreement and may require a hold harmless agreement.￼ it’s always best to consult your realtor association and your attorney for advice as to how to structure this.
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