If you have the right knowledge and skill set, flipping houses can be highly lucrative. This process typically involves purchasing a property at a price below its actual or potential value. After making changes to the property to increase its value and/or appeal, the house flipper is able to sell the property at a handsome profit.
For people interested in house flipping in the state of California, one of the most common questions asked is “do I need a real estate license?” The simplest answer to this question is “no.” There is no law that requires you to obtain a California real estate license in order to flip houses. However, this does not mean that getting a real estate license to help you flip houses is a bad idea. Below is some information to help you understand how a real estate license could be useful to house flippers so you can make the best choice for your future in real estate investment.
What Is a Real Estate License?
A real estate license is a license issued by the state that gives you the authority to engage in real estate transactions on behalf of another party. In most cases, someone with a real estate license represents a person or organization that intends to buy, sell or lease real property. Because serving as someone else’s agent in a real estate transaction requires specialized knowledge and skills, a real estate license is required by state law for anyone who wants to act in this capacity.
Most real estate licenses belong to real estate agents. Real estate agents spend their time acting as buyer’s agents or seller’s agent in exchange for commission. These agents may also work in property management.
How Do You Obtain a Real Estate License?
In order to obtain your real estate license in the state of California, you must satisfy several requirements. Specifically, you must be over the age of 18, and you must have completed at least 135 hours of approved pre-licensing education. You must also find a licensed California real estate broker willing to act as your employer, and you must pass an exam administered by the state. The final requirements to apply for real estate licensure in California include fingerprinting and passing a background check.
Benefits of Real Estate Licensure for House Flippers
Although it is not required to become a house flipper, having a real estate license can still be beneficial if you are looking to make money in real estate. Some of the specific benefits available to house flippers with a real estate license include:
1. Access to the Multiple Listing Service.
Only licensed real estate agents have unrestricted access to the Multiple Listing Service, or MLS. This is the online platform where real property is listed for sale. Properties listed on the MLS are viewable by the public. However, only a licensed real estate agent can add a property to this database. In addition, websites like Realtor.com and Zillow that make data from the MLS public do not have access to as much information as a licensed realtor. Furthermore, access to newly listed properties is often delayed.
If you have a real estate license, you will have the ability to list properties for sale on your own without seeking help from a real estate agent. You will also have full access to information about other properties listed on the MLS, making it easier for you to find the prospective purchases that are most likely to work for you. Additionally, you will be able to access all newly listed properties as soon as they hit the market, giving you an advantage over any house flipper that doesn’t have a real estate license. Since many of these properties are under contract within a few hours of being posted, this is an invaluable benefit for someone flipping houses.
2. Access to alternate sources of income.
Some people are eventually able to earn all of their income by flipping houses full-time. However, if you are hoping to make this your way of life, it may take you some time to get started. While you are waiting for your house flipping business to get going, you may need other sources of income. If you obtain your real estate license, you have easy access to other sources of income that are closely related to the field in which you are trying to become successful.
House flippers with a real estate license can supplement their income by working as a real estate agent and earning commission. House flippers can also add to their income by accepting positions in property management.
3. Decreased closing expenses.
If you don’t have a real estate license, you will probably need the help of a real estate agent when you are ready to put one of your investments back on the market. When the real estate agent sells the property, you will be required to pay a sizable commission.
Even if you have a real estate license, you will still need to pay commission to the buyer’s agent. However, your overall closing costs will be much lower.
4. Networking advantages.
The more connections you have in the local real estate industry, the more successful your house flipping business will be. When you obtain and utilize your real estate license, you will meet other real estate agents, as well as wholesalers, home inspectors, appraisers, contractors, California hard money lenders and investors. This will help you to build a stronger business.
Making a Decision
Getting a real estate license can be beneficial for someone who wants a career as a house flipper. However, that doesn’t mean that licensure is the right choice for everyone. After all, obtaining your real estate license is both time-consuming and costly, so you need to be sure that you are making the right choice.
To decide whether you should obtain your real estate license, review the requirements carefully and consider your own unique situation and goals.
What about a contractor’s license?
A real estate license is not the only type of professional license that can be beneficial for someone who wants to flip houses. After considering a real estate license, many people wonder whether a contractor’s license would be useful. As with a real estate license, a contractor’s license is not required for anyone who wants to flip houses. However, also like a real estate license, having a contractor’s license can make you more competitive in the marketplace.
Benefits of a Contractor’s License for House Flippers
Some of the specific benefits of a contractor’s license for someone flipping houses include:
1. Reduced permit expenses
Before you can begin renovating a home you plan to flip, you will need to pull certain permits as required by law. In most cases, a hired contractor will charge you an extra fee for this service. However, if you have your own contractor’s license, you can pull these permits on your own without paying the extra fees, thus reducing your overall expenses and making it easier to qualify for loans from hard money lenders in California.
2. Lower renovation costs
Renovation work on a house you plan to flip should be completed by a licensed contractor. If you have your own contractor’s license, you will be able to do the renovation work on your own. You won’t spend nearly as much money in renovation costs as you would if you had to hire someone else to do the job.
However, even though doing the work on your own can save money, it is important to remember that you will need to invest a significant amount of time and effort on the process. In addition, it may take longer to complete the work if you are doing it on your own, especially if you have a full-time job. If you want to speed up the process, you can hire your own hourly workers to do some of the work while still paying less than you would to a third-party contractor.
3. Fewer risks
When you have your own contractor’s license and you don’t have to hire a third-party contractor, you won’t face as many risks with regard to poor workmanship, theft and default. Although many contractors are reputable professionals who do quality work, some are not. A single scam could end up costing you thousands of dollars. When you are working as your own contractor, not only will you be protected from these scams, but you will also enjoy greater peace of mind.
4. More predictable expenses
When you hire a contractor to handle your home renovation projects, you will usually receive an estimate of the costs associated with the project. However, in many cases, these costs will change throughout the project. Acting as your own contractor reduces the guesswork associated with this process. In addition, as you gain more experience with home renovations, you will be able to predict the cost of future projects much more accurately. This can give you a substantial competitive advantage.
5. Opportunities to earn extra income.
Just like a real estate license, having a contractor’s license provides you with opportunities to supplement your income. This can be especially beneficial in the beginning stages of your house flipping business when you are still trying to learn the ropes. With a contractor’s license, you will be able to complete other projects on the side to earn more money. If you have a day job, you may even be able to quit and focus all of your time and energy on contracting work and house flipping.
6. Knowledge.
The process of obtaining your contractor’s license can provide you with valuable knowledge that will make you more successful as a house flipper. With this knowledge, you will have a significant advantage over other people who flip houses to earn money.
Should I Get a Contractor’s License?
Just as with a real estate license, getting a contractor’s license is not right for everyone. There is an investment of time and money required before you can obtain the license. For some people, the benefits may not outweigh this investment. In order to determine whether a contractor’s license is the right path for you, you need to consider how it will affect your individual situation.
The Bottom Line
As a house flipper, you may benefit from having a real estate license and a contractor’s license, or you may be able to work effectively in this career without either one. Still other house flippers may begin working in this field without either license and eventually decide to get one or both.
If you are thinking of investing in real estate to flip, there is no need to jump into either of these licensure programs. Take the time to learn about the requirements and compare your options in order to make the decisions that will serve you best in the future.