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.
