LOCAL RECORDS OFFICE, LOS ANGELES, CA: A few weeks ago I had a debate with an online author about real estate licenses, I tried to prove a point about how real estate licenses aren’t necessary, he proved me wrong. I believe in saying “sorry” when it’s warranted, and I am big enough to acknowledge when I am wrong; except when talking to the author Brandon Turner – not because I don’t want to apologize to Brandon, but because I am never wrong when I talk to Brandon.

I rolled out of bed this morning and thought to myself – today is a good day to say “I’m Sorry.” You see, I’ve written several articles in the past few weeks questioning the wisdom of obtaining a real estate license as it relates to investing. Indeed, while I acknowledge that the essence of this discussion is in so many ways a function of the precise path you choose for yourself within the sphere of Real Estate Investing (license is more helpful to do some things than others), on balance I do believe that a license is a distraction.

Why I Believe This

Without going into great detail, since I’ve outlined my perspective elsewhere, let me simply point out that license, whether used in a traditional sense or as a cost-controlling element in investing, encourages the type of income that we refer to as Earned Income.

Income generated by trading services for money. Representing buyers and sellers is an activity, which results in earned income. Furthermore, the proponents of licensure as a benefit to investing argue that when flipping houses, the ability to represent yourself in a purchase or list your product at the back door creates transactional savings, which add to the bottom line. Point taken, no argument. Lest we forget, however, that activity of flipping/wholesaling in and of itself is a vehicle for earned income generation.

Now – in my estimation, what we do as fundamental investors is we buy income-producing assets to generate stable passive cash flow. We do this specifically for the purpose of getting away from needing to generate earned income. As such, while I agree that there is some value to being licensed, it is indeed a distraction if you define your ultimate objective as Financial Independence, which is a function of Stable Passive Cash Flow.

I Have A License

Why? Well – as I mentioned in the past articles I hardly ever use it. I do not typically trade dollars for hours – this goes against my religion. I buy multi-family assets, which are typically off market, and in this way having a license is meaningless. And in those instances when another agent brings me a deal, I allow them to keep both sides of it; they’ve had to work hard to find something that fits my criteria and I am not about to nickel and dime them.

So you see, I really do not have the need for a license in by business…

Except for This

Once in a while, one of my tenants wants to buy a house, and since it’s no skin off my back I will generally represent them. One transaction such as this pays for the annual dues of keeping a license, so I keep the license. Thus, having argued to the contrary, I must admit that there is one good reason to have a license for a fundamental investor.

BUT – only if you own the type of rentals that attract tenants who will potentially be able to purchase a home, which is a function of stable employment, sizable income, and reasonably good credit history. As you know, I wrote two articles recently which put into question the rationale behind purchasing property at the bottom of the market. I tend to have a global perspective on Real Estate – everything is inter-connected and inter-related, and this is another example of such.

I see three benefits of being at the lower end of the market. One – providing clean housing to the bottom segment of the tenant market, which is a good thing. Two-low entry point. Three – higher cash flow as function of low entry point. That’s it.

On the other hand, I see many benefits to operating in segments of the market other than the bottom, which run the gamut financing options, ease of management, appreciation, ease of liquidation, etc. The ability of the unit to attract tenants who are on track to the eventuality of home-ownership is just another little notch in the same belt…

I won’t say no to commission, which comes to me with very little effort on my part.

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