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How New Western Acquisitions Made Me Lose my Life Savings ($70k)
I bought a house from Tanner Hester (a New Western agent) in June 2019. There were lots of issues with the house as follows:
1) The house was built without a permit
2) The house was for the most part sitting on the floor. There was no foundation
3) There were encroachments into the neighbor’s land, as the driveway and carport were on the neighbor’s land. The boundary also cuts the edge of the house diagonally.
4) The structure was just a cabin, and not a house, yet I was sold this house at about $60k more than what it should have been sold for,
5) They underestimated the repair cost by over $20k.
We requested for a permit to continue the renovation of the property but was denied due to the encroachments on the neighbor’s land as well as the extensive repairs involved. We were told by the city that the only solution would be to demolish the house and build a new structure as there were too many issues with the house to allow a remodel. I bought the house for $140k ($125k hard money). I spent a total of $70k cash on the house (cash to close and renovations). Now nothing can be done to the house except to bring it down.
Most of these issues are things I should have identified before buying the house, had I done a thorough due diligence as most of my assumptions were wrong.
The purpose of this post is to educate new and aspiring real estate investors on steps to take when New Acquisitions is involved in the sale of a house. Always do your due diligence. Don't assume every word from their mouth is true, until proven by your due diligence. And it must be thorough if New Western is concerned.
You need to take following actions: This is for new investor’s like me.
1) Confirm New Western's ARV from a licensed real estate agent.
2) Confirm the repair cost by having a licensed general contractor walk through the property with you. Also have a foundation repair engineer confirm the status of the foundation.
3) Request for the most recent survey of the property. This would help you confirm where the boundary is, and what you own and do not own. The house in question had the driveway and the carport on the neighbor’s land. The boundary also cuts the edge of the house diagonally. The new western agent did not mention this when we walked the house. It was included in the package, but Tanner Hester never mentioned a word of this.
4) Confirm from the city if there was any unpermitted addition to the house. This house full completely unpermitted.
5) Go to the city to confirm that there is no issue with the house, and that if you were to request a permit, it would be approved. Had I gone to the city, I would have known that the house was built without a permit, and that to be able to renovate the house I would have to appear before the board of adjustment of the city.
6) Most importantly, the current New Western business model does not afford new investors time to do their due diligence on a house. They want you to make a decision within a short time, put $5000 down, and even after this, they don’t allow you to go into the house until after closing, no matter how long it takes. This was my experience. It’s best to get your deals as a new investor without any pressures, and I don’t think New Western's model affords you that opportunity.
This is my piece of advice to new investors dealing with New Western. I know a lot of people in here would say I should have done my due diligence. I agree, but as a new investor, there are things you may not foresee if you’ve not had first hand experience or if someone had not told you to beware.
That's the reason for this post. Have a lovely 2020.
Jocko Willink wrote an amazing book called Extreme Ownership. This would fall into that category - pretty much everything does.
Your feedback to investors is spot on, I wish you didn’t have to learn the hard way and sharing this will help all new investors who read it. Shame on them for pushing that deal on you but you have to take ownership for it. I’ve not heard good things about them but we all need to do our own proper due diligence on these houses. I hope you can recover and get this deal worked out somehow.
In this day and age. With all the information out there, how does this still happen?
I guess there still aren't enough podcasts, forums, books.
It's been said many times before but thank you. It takes courage and humility to put your experience out there for the benefit of others. It’s an especially helpful reminder to those who are starting out. Sorry to hear this happened to you.
I'm sorry you had to go through this! Thank you though for sharing this story though, as someone new also, it is easy to fall for what a wholesaler is saying at times.
You learned a very hard lesson, but please try and take it as such. DO NOT give up on your dream of financial freedom! Hustle as hard as you can for that next down payment! You learned a lot from the school of hard knocks, don't throw away your education, use it. There are no shortcuts in real estate. Find a trust worthy team, read all the books. And pick up a copy of Jocko Willink's "extreme ownership"
I co-founded New Western more than 11 years ago.
My apologies that it has taken us this long to comment within this thread. We wanted to ensure we researched the transaction to respond accurately. We have had the opportunity to review documentation, speak directly with the agents involved in the transaction, their managers, and Femi.
I wouldn’t wish Femi’s experience on an enemy, let alone a customer. In my experience, this kind of situation with a property is extremely rare and is worthy of being of a case study regarding the risks of real estate investing.
Over the last 11 years, New Western has sold tens of thousands of properties across the nation and I have experienced few transactions like this one, where so much goes wrong. Even though the result was not favorable, I am confident that everyone involved in this transaction entered it in good faith.
I can truly understand how this situation could be overwhelming for a new investor. Personally, my first investment ended in a very similar way. I lost what I considered at the time to be my life savings. I almost had my truck repossessed, ruined my personal credit for years, and the deal source was one of my closest friends. Overall the experience was a major low point in my life, but it caused me to develop many necessary habits that have led to the success of other ventures. I never once blamed my friend for the situation.
I can empathize with the loss that Femi has experienced but cannot take responsibility for the result. However, due to the unique calamity of the situation, we will not gain from this misfortune and will be contacting Femi to arrange to return the profit New Western made related to the deal. I cannot know every detail of Femi’s situation; I can only relate to the end result. I’m sure there are differing nuances, but I’d like to clear up some facts regarding the transaction that I have observed.
The New Western agent provided an existing 45-day old survey in the first communication about the property. It was at the front of the marketing packet and clearly showed the driveway position across boundary lines as shown in this image: https://www.screencast.com/t/7E4PLnKksjZo.
Additionally, the agent offered to order a new survey via email the day of contacting if Femi desired.
No marketing material contained an ARV or Repair Cost. The description pointed to details of a sold comp and recommended the investor aim for a similar finish out as follows: "Your best comp is going to be 9104 Shawnee. That's the finish out you need to aim for. The property will need a little bit of TLC everywhere to get to top dollar."
The MLS description for the sold comp at 9104 Shawnee on the packet showed that "Rehab was completely permitted and inspected."
This was not Femi's first transaction. He had previously completed a New Western property at another office with a different agent, which he purchased for $71,501 and resold for $134,000 after only 3 days on market. Our internal comments on the property include this note "Solid comps at $135k, quick turnaround." As a brand-new investor, he turned the entire project in less than 4 months and reported a 36% ROI to the agent. Here is the finished product on Zillow
https://www.zillow.com/homedet...
The New Western agent reported during our review “Even though Femi was successful, I suggested on at least one occasion that he reconsider if investing in distressed properties is right for him due to his personality type.”
Notably, Femi wasn’t the only party performing due diligence on the property. One of the most experienced fix-and-flip lenders in DFW approved and funded the transaction and is also exposed and anticipating losses.
At a hearing with the city Femi makes the following claims:
Shows a general contractor bid for $20,000 to fully restore the property.
States the foundation is good.
The big issues appear to be from code enforcement’s discovery of a full rehab taking place, including electrical work, all without permits. Our understanding is it spirals from there and ultimately results in the structure no longer being grandfathered mainly due to the level of unpermitted work that was performed.
If you watch the video of the hearing you can experience the series of events that lead to the unique misfortune of this deal. Femi tells his story then the aftermath of the board and neighbors unfolds. It’s truly an unfair situation for Femi. To make matters worse his general contractor was not present to provide professional reassurances regarding the work plan. See video below:
http://flowermoundtx.swagit.co...
It’s unfortunate that the result hit this investor so hard. Even though these issues are rare, professional real estate investors deal with unforeseen roadblocks frequently.
I’d like to also address some other comments in this thread that I believe to be misconceptions. For some, I accept that these opinions may remain unchanged. If you feel you should not do business with our company after reading this, then I believe your opinion is appropriate.
In this thread and others, there is a comment that New Western “targets new investors.” Please understand that the majority of our properties are sold to repeat buyers and experienced investors. I would challenge the reader to reason why selling to experienced repeat investors is generally more efficient and profitable for us as a company. Experienced investors generally pay more, not less (another common misconception worth clearing up another time). New investors actually represent a subset of our transactions and we choose to serve them because we find value in growing the overall industry. Everyone has to start somewhere, and we have seen a great deal of loyalty from customers that have cut their teeth with us over the years. Working with new investors presents a complex challenge though. In order for our investors to be successful we must line up good opportunities, but those opportunities are only as good as the investors' ability to execute on them. If they are poor in execution, the result is at risk. You might recommend we address this by offering more guidance on how to be successful. But ironically, and unfortunately for those that need it most, any guidance we provide brings the risk of backfire when accountability is questionable. There is simply too much we cannot control after we sell a property for us to provide any prediction of a result. Agents cannot accurately answer subjective questions with objective answers, so when will we stop expecting magically accurate ARVs? Who’s accountable when the result is based on any combination of purchase price, managing contractors, design choices, market forces, blind luck, etc.?
As a company we can always do better at setting expectations, however risky situations for new investors are sometimes challenging to detect or avoid as a company. I witnessed a prime example at a national REI conference recently when a new but solid "cash buyer" proposed a live question to a panel of "experts." He was complaining that he couldn't get a "cash offer" accepted in his area.
The panel asked him how much cash he had: A few thousand
The panel asked if he had a lender: All had turned him down
The panel asked if he could somehow find the money: No Question he could! It’s a guarantee!
Expert panel advice: Try putting more money down so they know you’re real.
This is how a new investor could be committing fraud in the inducement at the advice of “experts”, and ironically how a lot of negative BP threads are posted regarding “stolen” down payments. Imagine you are the seller in this situation?
In my opinion, on the other side of the coin are good people that assume this business is far easier than it is. Anyone looking to get into real estate is overwhelmed with information championing this perspective, be it paid events, mentorships, or their neighbor at a barbeque bragging about his last flip. When you buy a distressed property it’s not like buying a vacuum cleaner that is supposed to work 100% of the time or the seller will replace it for free. Real estate is a risk/reward proposition. If you cannot accept that prospect than you are a consumer, not an investor.If you are new to the business and reward is your only expectation, then I will be the first to ask you not to meet with New Western. You will only create a frustrating experience for yourself and New Western. We provide materials to our agents to hammer this mentality home, and we have processes to back them up. But we need to do better. This is why we require an in-person meeting (which everyone complains about) and unfriendly disclosures that state the high-risk nature of real estate investing not once but twice before we ever send out a property:
“Real estate investment is speculative in nature and risk of loss can be substantial. The recipient of this information should carefully consider whether such investing is suitable for them.”
This is not buried in small print. It was added years ago to stem the flow of inexperienced investor purchases and to get investors to consider whether they are really prepared for this business. In other words, this is likely one of the “red flags” new investors talk about on BP. It is intentional and designed to be noticed and considered.
If you do come to meet with New Western, we will send you what we believe are good opportunities. It’s okay if not everyone agrees with us, I have found opinions far outnumber properties in this business. I do not claim to know every New Western agent personally, but I believe if you find he or she is excited about an opportunity, it’s likely because they have experienced investor successes. I like to think most of our agents also know we are capable of being wrong, and sometimes things cannot be uncovered with any amount of due diligence. Professional investors know and expect that at least one issue will come up on every deal that is unforeseen. Sometimes there will be unforeseen electrical issues, slab leaks, etc. Deals have hair on them: fact. Conversely, I have been overwhelmed by how many times I have seen a deal that every investor said was terrible, and the actual result was an unforeseen financial success.
Regardless of the challenges, we will not stop working with new investors just because a few people that may or may not have a casual acquaintance with our company state we “target new investors” on BP. We do believe that real estate investing is one of the last opportunities in small business where average Americans can still jump the wealth gap. That kind of purpose means something to us as a company. However, it’s a belief that is often exploited by gurus and companies that fill ballrooms and rarely share the truth that REAL ESTATE INVESTING IS NOT EASY. It’s very hard, requires years of experience, perseverance, grit, and creativity — and it still lets the best of us down at least 2 out of 10 times. We could share case studies about investors building sustainable RE businesses at 10X their old corporate income and they are all 100% true. However, deals 1 through 10 probably weren’t all pretty. That’s real estate. It’s tough until it’s not. This is exactly why it can be so rewarding when you figure it out.
I’m clearly biased in my opinions given my investment, but it doesn’t stand to reason that a decade-old company that literally sells a property every 30 minutes and has opened dozens of offices around the country somehow doesn’t have a viable product. I think the truth is likely simpler.
It is true that real estate is risky.
It is true that when you buy in a competitive market you won’t get to perform as much due diligence, and you will need to rely on experience, wisdom, and honed processes.
It is true that more experienced investors will often have better construction networks, resources, and established processes that will allow them to pay more and somehow profit more. If you want to become like them, you have to put in the work like they did and experience the same hard knocks along the way.
It is true that there are no shortcuts!
And it is true that real estate continues to be the number one source of $1M+ wealth generation in the world for most people. Our goal is to help more investors get there, but we can’t do it unless we share the accountability.
In this forum, much has been implied about reputation, ethics, and integrity. We don’t speak of it often publicly, but internally we consider these important values and we have long considered them requirements to grow. What has also been discussed in the thread is accountability, which we strongly value. As a company, we are not impervious to mistakes. When we discover we have made a mistake, we reach out immediately and we hold ourselves accountable regardless of costs, we also expect the same of our customers and industry peers. Our industry is still maturing and is at risk of stigmatization if accountability cannot be addressed by all participants. Compared to many of our industry peers, our company is large, diverse, and made up of many personality types. Given our size and visibility, great responsibility is taken to ensure everyone follows shared standards that balance the best interest of sellers and investors alike. It is at times challenging to administer but will always be considered table stakes for participating in our industry.
Thank you for reading with an open mind. I appreciate the discourse and welcome thoughtful and productive feedback.
Thank you for your post. I had a meeting recently with New Western and I could easily see how something like this happens.
Very sad to hear this outcome. Tanner Hester also sometimes sends me properties but like everyone said they’re mostly rubbish.
Keep going at it, you’ll recover!
My colleague just received an NDA from their Fort Worth branch that clearly contradicts Texas law, in particular the Property Code. How are they still in business?
Hi Femi,
I'm a buy and hold investor and recently entered the market for another property. I asked a question on a RE investment forum and almost immediately after posting, a New Western agent messaged me. I'm in a very inflated market at the moment and this person claimed they could find me off-market properties and if I'd be interested in flipping homes instead of buying and holding. I'll give him credit for this: the market I'm in is no longer a good buy and rent market unless you have a sizeable down payment or buy in cash, flipping is the way to go if the right deal comes along. I asked him to give me an example of a current flip, and to me, it seemed unrealistic. The ARVs he gave me were not accurate from the comps I saw in the same area, in fact, comps are about $40k-$50k below his ARV. I live in a much better area, have a much newer and nicer house and my own home would not sell for that much. I immediately stopped responding and then THANK GOODNESS I found your post because it confirmed all the red flags I was seeing. Thanks for sharing :)
This sounds like a tough situation. I'm getting started myself and ran across this looking into there reviews. Something you could have considered and I imagine it is long past is build your foundation where you want the house and move the house to it. It is a little pricy but may have allowed you to salvage what you had into it and avoid the loan.
April 2022- NW have not changed their tactics. I'm in the Atlanta area and have over 10 years of investing experience. I have done tons of deals with wholesalers but NW is the most unprofessional and disrespectful group/company I've ever dealt with!
My experieence
1st property I was told "JUST HIT THE MARKET" and I was given first chance to buy if I wanted it (lucky me). I looked at the numbers (they provided) and drove out to the property. The property had MAJOR foundational issues the cracks all up the wall, under the fire place, and sub floor. I called to advise the agent of the MAJOR foundational damage, and I would need a structural engineer to look it and move forward. Agent replied that thier contractor could repair foundational issues and it would cost no more than $1k. I inquired information for the contractor, but agent said NW couldn't provide due to liability. The agent then told me that someone else bought the property and deals wouldn't wait for me. I was like huh, okay? I thought maybe it was me and not being aggressive enough or having the right contractors.
2nd Property was sent to me the very next day, again looked over their numbers and drove out to the property. The agent met me at the property late and was a little unprofessional but hey it's a potential deal. The agent didn't have access to property and after waiting over 20 minutes the agent jumped the fence and climbed through a broken window to let me in. We walked the property and based off the numbers it seemed liked a profitable deal, I signed the contract. By the way at the end of our meeting he offered me the 1st property with the MAJOR foundational cracks to buy again. It seemed the phantom buyer backed out.
The next day I took my wife out to see the property that I put under contract with NW. Pulling up to the property there was a lady in the house claiming she was a tenant and had a lease to the property. Atlanta has one of the worst tenant laws I've come across. After coming to this new information I wanted to void the contract but leave my EM on file in the event another deal was made available. I was told my EM was at risk even though a tenant/swatter having a lease in place was never disclosed to me. Now that I wanted out of the contract their true colors came out and if the agent was unprofessional before he hit an all new low level. I requested the owner/seller provide a written letter that there were no leases in places, the agent assured me that wouldn't be a problem and I should recieve documents in a couple of hours. Four days later I expressed my intentions of terminating the contract, shortly afterwards I recieved a electronic document stating no known leases, the document was backdated prior to my contract. Sounded fishy being the fact it was not disclosed or added to my original contract.
NW is a high pressured sales company that doesn't care about it's business relationship with their clients and future business. I will never do business with them again. Investors beware!!!! Unfortunately I didn't do my research on NW until things went bad.
Quote from @Tabitha Caver:
April 2022- NW have not changed their tactics. I'm .......
The next day I took my wife out to see the property that I put under contract with NW. Pulling up to the property there was a lady in the house claiming she was a tenant and had a lease to the property. Atlanta has one of the worst tenant laws I've come across. After coming to this new information I wanted to void the contract but leave my EM on file in the event another deal was made available. I was told my EM was at risk even though a tenant/swatter having a lease in place was never disclosed to me. Now that I wanted out of the contract their true colors came out and if the agent was unprofessional before he hit an all new low level. I requested the owner/seller provide a written letter that there were no leases in places, the agent assured me that wouldn't be a problem and I should recieve documents in a couple of hours. Four days later I expressed my intentions of terminating the contract, shortly afterwards I recieved a electronic document stating no known leases, the document was backdated prior to my contract. Sounded fishy being the fact it was not disclosed or added to my original contract.
NW is a high pressured sales company that doesn't care about it's business relationship with their clients and future business. I will never do business with them again. Investors beware!!!! Unfortunately I didn't do my research on NW until things went bad.
Did you get your deposit back?
I have been looking at some deals over the past year and they mostly use bad comps. Going too far or using properties that just aren't in the same league. They frequently use unreasonable scope of work to get a projected range for max return otherwise it's usually not a deal.
Quote from @Lydia R.:
@Femi Ibrahim New Western has a terrible reputation here in Dallas. I absolutely refuse to even speak with any of their guys when they approach me at REIAs and meetups etc. It sucks you had to learn this way, but making mistakes is the best way to learn. Thank you for sharing your story here to help prevent other new investors from falling into the same trap.
Quote from @Shahriar Khan:
@Femi Ibrahim so sorry about you losses. I dont buy from New Western now but when i tried they came out to expensive for me. A lot of people in Houston find them ok.
Whosellers are double edged swords. If ones KNOWS THE MARKET /REHAB , they will find you the best/cheapest deals with wholesellers. I am yet to see a realtor beat wholesllers price ( i love you all realtor out there ) . If once DOESNT KNOW THE MARKET / REHAB then realtors may provide another sets of eyes thus may be beneficial ..
Permit with house /floors /no floors are all easy and typical for major rehabs. (last reahb i used 17 piers on a 1,100 SQFT house.. figure that ). I dont touch a closing statement without a survey on hand. Survey along saved me tons .
I hope you dont stop here with RE, go get the second one and break even . You know the most about all those issues and leverage those.
Please Mr. khan , could you recommend me a serious wholesaler in the Houston area ?
I m an agent who works with New Western and I would like to offer you an explanation, first we are the ONLY reliable wholesale market supplier who will show you everything at front, we offer a package ,this property package which is btw free ,has ALL the information for you to make an informed decision, but we are not an education center provider, second we didn't keep your money and disappeared we helped you to get a deal maybe not a good one for you , that's why is always good to either be a realtor contractor hard money lender otherwise you will ALWAYS be spending extra money on those people, we deal with savvy buyers and few times will deal with first timers and the reason we don't deal much with unexperienced is because first timers need time and they are quite slow and our houses are gone normally in a couple of days if not hours now we SELL A PROPERTY every 13 minutes if we are that bad ask the another thousands of investors who uses us some monthly and we ALWAYS recommend to buy with a general contractor opinion or due diligence is on our contract.Reading your story is just a sad victimization of a poor decision and again we never advertise for the best deals just a deal if you don't want it let it go and look for another one next day or so ,what for you was terrible for an experienced person not at all , there is always exit strategies BRRR DSCR buy and hold etc one thing for sure you never loose in real estate maybe you make less and it's fine onto the next !
Quote from @Lydia R.:
@Femi Ibrahim New Western has a terrible reputation here in Dallas. I absolutely refuse to even speak with any of their guys when they approach me at REIAs and meetups etc. It sucks you had to learn this way, but making mistakes is the best way to learn. Thank you for sharing your story here to help prevent other new investors from falling into the same trap.