Should you work with wholesalers to do a house hack?

Question

I am doing my first house hack and wanted to hear your experience working with wholesalers in Chicago for 2-4 unit multi-family properties.

John Warren · Answer

@Claire Rosenberg working with wholesalers is fine, but you will have to be pretty confident to grab some of the deals they have. I think if you are looking to use an FHA product you will ultimately be unsuccessful because FHA doesn't really work for 99% of wholesale deals. You need to buy with cash, or maybe hard money, in order to take down a deal where you don't have control. The thing with wholesaling is that your margin of error is a lot thinner because you typically don't have any contingencies in place to protect your earnest money. Any contingencies would be in place to protect the wholesaler before they assign the contract to you. I recently purchased a deal from a wholesaler, but I also am on my 6th apartment deal and am also a licensed agent who specializes in this space.

Have you looked on the MLS with realtors before? As an investor I think it makes sense to always look at all options as part of your deal funnel. There are a lot of great deals that have traded recently on the MLS in my sub market here in Chicago, and I know a lot of investors doing well on the MLS.

Have you looked on the MLS with realtors before? As an investor I think it makes sense to always look at all options as part of your deal funnel. There are a lot of great deals that have traded recently on the MLS in my sub market here in Chicago, and I know a lot of investors doing well on the MLS.

John Warren · Answer

@Claire Rosenberg that makes sense. Wholesalers are one more part of the deal funnel. Hopefully you find a good deal in 2020!

Crystal Smith · Answer

I'd say 25% of the deals we've purchased over the years have been from people who call themselves wholesalers. This includes single & multifamily deals. The challenge with you purchasing to house hack as a traditional buy is that most wholesalers will not allow an inspection period in their contract. You have to do all your due diligence upfront, no inspection period, attorney review or mortgage contingencies are allowed. Once under contract and delivery of EMD, the only way to terminate a deal and get your EMD back is if the wholesaler cannot deliver clear title. The wholesaler's we've worked with always delivered with a clear title.

Claire Rosenberg · Answer

@Austin Pitts thanks for the insight and that seems to be the common theme about competing with cash buyers! Doesn't seem to work well in my situation if I am using an FHA loan.

Austin Pitts · Answer

As a licensed realtor, wholesaler, and flipper here in Austin... I have to say I completely agree with what John Warren said. Especially about being efficient in all facets of real estate and learning to identify deals from multiple sources!

He is also correct about not being able to use a conventional loan on buying a wholesale deal (or really any "investor friendly" deal as you will be competing with cash buyers.) I work with a few investors who are using a hard money loan, rehabbing the property, then refinancing.. some call it the brrr strategy I believe!

Claire Rosenberg · Answer

Thanks @John Warren and @Gloria Wiekert I just sent you a message!

Gloria Wiekert · Answer

@Claire Rosenberg if you do find a wholesale deal you like, I recommend calling David Goldhirsh with LeaderOne for your loan. I work with a few wholesalers to find off market properties and because FHA almost never works for wholesales I send those properties to my cash buyers only. However, there was a perfect house hack wholesale last year and David was able to help my clients close with a low downpayment. I believe the interest rate and fees are a little higher than FHA or conventional but if the numbers still work it's a good option to consider.

Claire Rosenberg · Answer

@John Warren thanks for the response and appreciate your insight on this! I have been looking for properties through the MLS and just wanted to explore all of my options.

Should you work with wholesalers to do a house hack?

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