Obtaining A Real Estate License To Save Thousands

Real estate agents have a lock on the real estate market, but have you ever wondered what it takes to become one? The answer might surprise you.

Becoming a Real Agent is Fast and Easy

You can become a real estate agent in two months. By taking a few evening classes, buying a book, and then taking a test. you can become a licensed agent. Once you pass the test you only need to spend some time with a current real estate agent. This can be completed by simply speaking with your local real estate agent, who sold you your home, who is a friend of the family, etc. Once you obtain your license, expect to save 3.5% on your future real estate transactions.

The Benefits of Obtaining a Real Estate License

You get a much better understanding of the real estate process. This is a great crash course in real estate. Most importantly, you learn a ton about how the transaction is processed and executed. This understanding can help you be a better customer when you choose to use an agent in the future. It will also speed up your real estate deals tremendously.

You also obtain the ability to command 3.5% of every real estate transaction you are involved in. Instead of for sale by owner, you can list your property on the MLS (the Holy Grail of listing services) and you can act as your own agent. Typically only licensed agents have access to the MLS database. This is very powerful. Normal for sale by owner properties are not listed on the MLS and those owners do not get a commission split. Additionally, since most do not offer any broker commissions, most brokers choose not to show these houses. These are a few reasons why for sale by owner houses typically sale for less and spend more time on the market.

Finally, the biggest benefit occurs when you buy houses. Instead of paying full price, you get a 3.5% discount because that is your broker fee. Imagine buying four to five houses in your life time and saving 3.5% on every house. This could add up to tens of thousands of dollars in savings. Additionally, if you ever want to become an investor, having a license adds profit to your bottom line. You also get much greater sourcing of properties. Besides access to the MLS, you can simply walk into most banks and ask for their foreclosure list. This saves you the time of going down to a courthouse or going through another agent, whom you have to indirectly pay 3.5%.

Becoming a real estate agent is very cost effective. In addition to the great real estate knowledge you gain by going through the process, there are significant savings to be gained by acting as your own broker. Taking two months out of your life now could save you thousands of dollars in the future.

Avoid Capital Gains Tax on Real Estate Sales

Paying taxes can make it harder to grow investments, especially when they will be subject to taxation down the road. That is why it is important to know that for every investment there is a way to defer or avoid taxes.

Real estate investors do this through their losses on depreciation, which never actually come out of their pockets, but can show a loss where a profit was actually made.

For investors who want to sell a property that has gone up in value, the best way to defer taxes, perhaps infinitely, would be to take the profits from the sale and engage in what Robert Kiyosaki, best-selling author of Rich Dad, Poor Dad, calls a 1031 exchange.

What is a 1031 Exchange?

A 1031 exchange (also called as a like-kind exchange) is an event that takes place in real estate where a property owner sells a piece of land, a house, or a building, and uses all of the equity to purchase a larger piece of property of the same kind.

Since the gains that were made are being used to buy a bigger investment, all taxes are deferred until a sale is made that does not involve this transaction.

The term “1031 exchange” is used in common language because it is in section 1031 of the Internal Revenue Code that this idea is explained.

It is there that it states that gains taxes will be deferred on properties of the same kind if they are being used in a productive manner, such as a business or investment. This rule does not apply to stocks and bonds.

Important 1031 Rules

Investors have to understand that this kind of deal is not hard, but it does involve a few complications that cannot be avoided:

  • Two key deadlines
  • Placement of equity
  • Use of an intermediary

The deadlines that must be noted by someone attempting to make this kind of deal are 45 and 180 days after the sale of the property that brings in the proceeds for the new purchase.

The 45 calendar-day deadline is when buyers must identify the new property that they want to acquire. If this deadline is missed, the tax deferral is off. After 180 days, the identified property must be bought. These deadlines are concrete, and can fall on a holiday.

The last key to completing a 1031 exchange is using a Qualified Intermediary, also called a QI. The QI must be a person that is an unbiased third party, leaving relatives and business partners out of the loop. The QI will be the one actually securing the purchasing and selling of properties, making sure that it all goes to plan. Rates for such services can be as high as $2,000.

Investors must make sure that their QI is bonded and insured just as they ensure their electrician and plumber are licensed and insured.

Once all of the pieces are in place, real estate investors can turn small rental homes into larger pieces of property without having to pay the taxes on the gains that were made in the sale by growing their portfolios as they expand from duplexes to quadplexes to apartment buildings, or moving from owning a small cabin to a motel to a hotel.

When the original owner passes on, the property can still operate and earn money for the new owner who will never have to pay taxes on the gains until it is sold, if it ever is.