Author Topic: Should I become a realtor to buy investment property?  (Read 3316 times)

Lago

  • 5 O'Clock Shadow
  • *
  • Posts: 33
Should I become a realtor to buy investment property?
« on: August 05, 2015, 02:18:08 PM »
Hi,

I want to buy a rental property in Houston (where I live). If everything goes well with the first rental property, I want to buy another. Should I become a realtor so I can collect the buyer's realtor commission for buying these properties? Are you allowed to represent yourself as a realtor and collect the commission on your own purchase? I've seen houses for sale where the listing realtor is also the seller, but I'm not sure about the rules on this. It would cost about $750 to become a realtor in Texas. The homes I would buy as investment property would be around $100K, so the buyer's agent's commission would be 3% or $3000 (minus the brokerage's cut which would be maybe $500). It seems like it would be a good idea to become a realtor to represent myself on these transactions. I would love to hear your thoughts on this idea. Is this legal?

I feel confident being my own realtor since I know the Houston area very well and I have bought 2 houses here in the past, but I don't want to take the courses and pay to take the exam unless it benefits me in these upcoming transactions.

Thank you!!
« Last Edit: August 05, 2015, 02:20:32 PM by Lago »

MaxRules

  • 5 O'Clock Shadow
  • *
  • Posts: 49
Re: Should I become a realtor to buy investment property?
« Reply #1 on: August 05, 2015, 09:25:29 PM »
I became a Realtor here in Missouri for almost those same reasons. If you are only trying to collect some of the commission, I would say it is NOT worth becoming a Realtor. There are membership fees to keep your license (mine run about $550/year) as well as MLS access fees which I think are about $60/quarter. You also have to attend some continuing education classes. It is more expensive to hold the license than most people know. Of course I can only speak for Missouri.

I like being a Realtor for many reasons once you over look the cost. First I wanted to learn as much as I could about real estate by taking the classes. Then I can search the MLS on my own and also get access to a foreclosure and inspect it by myself without always hassling another Realtor to show it to me. And yes, you can represent yourself as the buyer's agent and get some of the commission. Here in MO, your broker gets half your commission so you typically only get about 1/4 of total commission. Funny how money in your pocket gets cut down so fast in this business!

Papa bear

  • Handlebar Stache
  • *****
  • Posts: 1271
  • Location: Ohio
Re: Should I become a realtor to buy investment property?
« Reply #2 on: August 05, 2015, 10:21:56 PM »
Consult with a tax professional as well.  Being a realtor can make you a real estate professional and rental homes are your active business, subject to FICA taxes and state business taxes that may not normally be levied.


Sent from my iPhone using Tapatalk

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Should I become a realtor to buy investment property?
« Reply #3 on: August 05, 2015, 11:00:24 PM »
Not until you have tried being a LL. Try it for a year then decide.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Should I become a realtor to buy investment property?
« Reply #4 on: August 07, 2015, 10:41:51 AM »
I did this about a year and a half ago concurrently with co-founding my 3-member rental LLC. My partners split the costs 3 ways with me and in return I've done the lion's share of property management to date. I pay all ongoing dues/fees to maintain the license and I keep all my commissions (after broker's cut).

It's worked out well for me. I turned a profit in my first year, which not everyone does, without doing any marketing or asking for business. I just bought property and collected commission every time. I also really enjoy, and feel we benefit practically from, having direct MLS access and the sense of being treated as more of an equal when working with other agents and negotiating deals. Look at the typical commission: the reason some people consider it exorbitant is that it pays for a lot of things they're not thinking about - countless hours and days spent on unpaid activities, clients who don't buy, thousands spent on marketing, etc. Acting as your own agent, you deal with none of that, and you still collect the same percentage. Or, you can offer to waive it as a negotiating tool, if the situation permits. It definitely adds options. Most brokerages will also give you extensive training and mentoring opportunities for no added cost - if you succeed, they'll get their cut at closing, so your success is in their interest too.

As noted above, make sure you accurately sum up the ongoing costs of maintaining a license. The fees are spread out between different rganizations and at different rates of recurrence, which I occasionally suspect is a ploy to get you to underestimate the total, but for me it's about $2K/yr. Total startup costs were about $2K as well.

Consult with a tax professional as well.  Being a realtor can make you a real estate professional and rental homes are your active business, subject to FICA taxes and state business taxes that may not normally be levied.
Unless you spend over 750 hours per year (14 hours a week) doing real estate activities, the IRS does not consider you a real estate professional.
I have a friend who's an IRS auditor and we've talked about this a lot. I may not even qualify if/when I quit everything else and do it as a part-time FIRE job.

Not until you have tried being a LL. Try it for a year then decide.
That's really not a bad idea. I had been a landlord for years when I got licensed, and it was part of my push to expand and professionalize a small portfolio. I had also had years of peripheral exposure to Realtors, knew I wanted to be one, and understood many of the basic concepts already. If I had just been starting out, it might have been too much all at once.
« Last Edit: August 07, 2015, 01:42:00 PM by zephyr911 »

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Should I become a realtor to buy investment property?
« Reply #5 on: August 07, 2015, 10:58:16 AM »
Here in MO, your broker gets half your commission so you typically only get about 1/4 of total commission. Funny how money in your pocket gets cut down so fast in this business!
Holy crap, what kind of split is that? Do you get sexual favors or alcohol in return? ;)

Here, most first-year agents get 70%, and thereafter it's usually 75% or higher, depending on their broker's fee structure. Some have multiple options that agents can pick from. Better splits are tied to higher annual caps (on the broker's take) and/or higher fixed fees; part-timers like me prefer to maximize percentages since we'll never cap out, while high producers generally take the hit up front so they can max out the broker's cut early in the year and take home more overall.

Lago

  • 5 O'Clock Shadow
  • *
  • Posts: 33
Re: Should I become a realtor to buy investment property?
« Reply #6 on: August 10, 2015, 03:03:03 PM »
Thanks for the advice! I will calculate the fees to be a realtor and maintain the license again... I might have underestimated it when I said the start up costs would be $750. More like at a minimum $750. Still, I think the first year I would break-even if I bought a rental property. Possibly some friends and family would use my real estate services as well, although I'm not interested in actively marketing myself.

zephyr911- did you start an LLC just because you have partners? I was reading that Rich Dad Poor Dad book and he said that its smart to make yourself a company and then have the company buy the rental properties to protect against liability.

bearded man- how can I try being a landlord without buying a property? Maybe I could look for a part-time job as a property manager.

maxrules and papa bear - thank you for your replies!

I am already FIRE. I am nervous about buying my first rental property, because my budget is pretty tight. However, I would be so proud of myself if I could make money without a job and outside of the stock market.

harshalpatel

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Should I become a realtor to buy investment property?
« Reply #7 on: August 11, 2015, 05:53:38 PM »
Lago,

RedFin operates in Houston https://www.redfin.com/

They are a discount brokerage which charges a much lower fee sellers and gives buyers a refund on the difference between the typical 3% buyer realtor commission.

If you search for homes in Houston via RedFin, you can see how much a rebate as a buyer you will get for each home.

It may be easier for you to use RedFin vs. become an agent.