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.
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Originally posted by @Guy Gimenez:Same song, different dance. There are plenty of warnings about these big box "wholesalers" online. Unfortunately, you are learning from your mistakes rather than the mistakes of others, which is always less expensive. Hopefully your warning will not fall on deaf ears. However, the title of your post is misleading. No one MADE you lose your money. Like far too many newbies, you chose to jump in with both feet without the appropriate knowledge, skills, relationships, etc. You chose to lose your money, this company just gave you the avenue to do so. Trust none of what you hear and only half of what you see.
Guy, as an aside if you recall we had some back and forth on surveys.. I leaned doing business in Texas everyone surveys before closing. out in the west we rarely do that unless its acreage or some other special circumstances we simply would not have enough surveyors to keep up with resi transactions in a timely manner.. but I can see in Texas were the land use rules and no building codes or lax ones and no licenses required years ago.. that you need to do this.. you opened my eyes on that one.
@John Collins good checklist. Do you share this checklist with your inspector?
Wow, somebody has a terrible reputation! Do great business and you will see great results. Sorry, you took an unfortunate business loss you will get it back x10.
"Turn Key" investment houses are becoming a plague. And lots of these turnkey providers are lurking around Bigger Pockets and Real Estate meetings. Most of these investments are not going to turn out well, especially for inexperienced / out of state investors. There are some honest and decent providers / operators. I don't mean to offend you all. But even these folks are often peddling real estate with very mediocre long term prospects. There are so many horror stories, that the whole class of investments should be suspect.
I didn't know New Western, but I just reviewed their website. @Jay Hinrichs mentioned that this group might be "Wholesalers." That is horrible because wholesalers didn't produce the properties they are selling and therefore have limited knowledge. They are unlicensed and their ethics as a group, from my experience, are more than a notch below licensed agents. Thankfully my state has just regulated wholesaling and you now have to be licensed. And Errors And Ommission Insurance companies don't want to touch them!
Due diligence is key. Going into a market you don't know is a risk. Buying a house you never visited before is a bigger risk. Not getting your property inspected by an independent inspector is a risk. Relying on the seller's financier, which orders your appraisal, is a risk. Never sign an "as is clause" without being an experienced rehabber/investor. Relying on the seller's proforma is a risk. Ask for their license number and errors and omission insurance if they are a broker. In many markets, a full set of disclosures is a legal requirement to sell single family houses, even rental houses.
Here are three additional ways to lose money buying a turnkey house: high turnover costs when a tenant vacates. Higher maintenance costs for rental houses. Can you recoop your money if you decide to sell it? An independent valuation of what the house would be worth ==vacant== is important. These items are never in the proforma returns.
A lot of folks are going to have a hard time liquidating these investments one day.
@Femi Ibrahim There were so many deficiencies with your transaction, that a good lawyer may be able to find legal merit and file suit. And even pierce the LLC or Corporate veil to make the principals of this transaction be held liable. (You may have signed away some of your rights if an as-is clause is in the contract)
Hard to believe I know anything that you didn't already know several times over Jay. But the words are appreciated.
@Tamyka Lawrence
Don't do it Tamyka. New Western is a bad wholesaling brokerage. Don't take the chance!
@Femi Ibrahim
I imagine the bravery it took to make the public post that you have. I simply want to thank you. All the responses greatly enhanced my understanding on a subject of interest.
@Femi Ibrahim I am so sorry this happened to you! I will steer clear. Just a suggestion, of course I would check with the city first, but would they grant you the permits if you were either granted an easement by the neighboring property or even ask the neighbor to purchase the land to resize the parcel. I know it’s a long shot but I just hate for you to be out all that money.
@Femi Ibrahim First, thank you so much for sharing this heart-breaking honest story with us all. I think the stories that include problems with investing are so important. It was a real kindness for you to share this.
Next, though, I really agree you should speak with an attorney. There is something called an "easement by prescription." You can Google it. But, basically, if the neighbors knew that your house was on their property and did nothing about it, then they basically give permission for it to be there. The use of the property has to be obvious - and obviously a house on someone's property sitting there in full daylight is obvious. Then, they have to have known about it, I think - it's been a while since I learned this law. And, I don't know TX law, so I'm not sure if there would be any difference as to the specific rules that may be different in TX, but, it's an old law from merry old England that made it's way to the US, so odds are there is some version that would apply to you in TX. A real estate attorney would know about it.
I wondered about title insurance, too. Nobody has mentioned title insurance, but if TX has some version of title insurance and you bought some - that should also guarantee against errors like property boundaries.
Maybe someone could suggest a good local real estate attorney for you there. Maybe reach out to the TX folk? But, I really think that you may be able to get around the boundary issue by claiming the neighbors essentially "agreed" to move the property boundary by not protesting when the building was built on their land. You might be able to start there. I mean, it's even a possibility that your lawyer could negotiate a settlement with the neighbor regarding agreeing to give you title to a strip of their land rather than fight in court over an easement by prescription. Then, the boundary issue could go away.
And then, maybe your lawyer could negotiate a settlement with the New Western's E & O insurance.
This may just come down to a lawyer working out a couple settlements for you. Take heart. It ain't over till the curvy lady sings :-)
Originally posted by @John Collins:Originally posted by @Michael Slockers:Thank you for the humility in this post. This is a terrible feeling for me as a reader, and I'm sure much worse for you. As Dave Ramsey says, and I echo, "I've done stupid with zeros on the end!" I have learned many lessons the hard way and reading your post caused me to pucker up at times I've done a fast purchase with less-than-due diligence.
Makes me wonder if someone has a great pre-purchase checklist they use for their due-diligence, at least on SFH purchases? Would be great if you're willing to share.
My checklist for SFH:
1. Foundation check and soil conditions
2. Settling / drainage - Gutter set up, gradient of surrounding land, how water moves during rain and subsequent cracks in/around house
3. Electrical check
4. Plumbing pressure test with water off (I would also throw in camera test that adds $200 on it's own- I got burnt with a sewage line replacement for $7-8k after purchase).
5. Land boundaries, zoning and permits. There was a grand design episode where the guy spent over a million on his dream house and right at the end , after all the construction was finished, had to call back the crew and dig his driveway or plumbing according to the zoning he wasn't aware of.
6. Age of roof, ac units, furnace
7. Natural disaster history and insurance options
8. Windows - single or double pane?
9. I don't buy older wood houses - too many issues with rot/termites/fire hazard.
10. Gas line valves - make sure no leaks
11. Sprinkler system checkMot all of this, excluding the plumbing, will be on the $500 inspection report with a well rated local filling you in on all the details with pics.
Thanks for the checklist. I'll add this to the list of things I'll watch out for.
@Sue K.:
I had title insurance and owner's insurance, but I was told these issues are not covered by the insurance.
@Femi Ibrahim have you tried speaking to the neighbor to possibly purchase some land from him? That is very unfortunate.
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Originally posted by @Sue K.:@Femi Ibrahim First, thank you so much for sharing this heart-breaking honest story with us all. I think the stories that include problems with investing are so important. It was a real kindness for you to share this.
Next, though, I really agree you should speak with an attorney. There is something called an "easement by prescription." You can Google it. But, basically, if the neighbors knew that your house was on their property and did nothing about it, then they basically give permission for it to be there. The use of the property has to be obvious - and obviously a house on someone's property sitting there in full daylight is obvious. Then, they have to have known about it, I think - it's been a while since I learned this law. And, I don't know TX law, so I'm not sure if there would be any difference as to the specific rules that may be different in TX, but, it's an old law from merry old England that made it's way to the US, so odds are there is some version that would apply to you in TX. A real estate attorney would know about it.
I wondered about title insurance, too. Nobody has mentioned title insurance, but if TX has some version of title insurance and you bought some - that should also guarantee against errors like property boundaries.
Maybe someone could suggest a good local real estate attorney for you there. Maybe reach out to the TX folk? But, I really think that you may be able to get around the boundary issue by claiming the neighbors essentially "agreed" to move the property boundary by not protesting when the building was built on their land. You might be able to start there. I mean, it's even a possibility that your lawyer could negotiate a settlement with the neighbor regarding agreeing to give you title to a strip of their land rather than fight in court over an easement by prescription. Then, the boundary issue could go away.
And then, maybe your lawyer could negotiate a settlement with the New Western's E & O insurance.
This may just come down to a lawyer working out a couple settlements for you. Take heart. It ain't over till the curvy lady sings :-)
Sue, prescriptive rights and adverse possession are very tough things to prove and take years.. and you normally have to pay the tax's on the disputed property which most don't do.
for a title company to insure the boundary's he would have had to buy and ALTA policy and most just use a CLTA which does not provide for boundary accuracy.. but your bring up good points.. I personally think the remedy is E and O insurance and sellers disclosures.. just because its wholesaled does not alleviate the brokerage or seller from providing Sellers disclosures we all see them if we are doing for real real estate deals with licensed agents. Then the disclosures could say they don't know nothing.. which indicates that one should really jump into due diligence.. I know when I buy foreclosures and exit.. on my disclosures there is very few things I attest to and I put at the bottom .. in the comments section buyer should conduct his or her own due diligence..
@Femi Ibrahim so was no title company involved or what ? shouldn't the title company have caught some of these things? especially encroachment on the other property,.
@Jay Hinrichs Ok I think you answered my question about the title company. But the last couple closings I did last year (3) all required surveys to satisfy the Title companies.
In fairness. For every horror story there is translations that go smoothly. Many people did deals with New Western and make money in my opinion.
I spoke with one of their agents before and he help set the ground work that I would need to have 5k non refundable earnest money to do contract and I would have to decide fast before one of the other agents brought a buyer first. I was fast buy taking the door fast. However to say their bad people in general is a strong stand. I don’t think they do inspections and if they did and missed something someone would want to sue them for that as well.
Everybody wants to blame somebody when something goes wrong.
Have heard this before about this company. They looked shady from the first time I heard about them. But in real estate always do your do you due diligence no matter what
If there was no seller disclosure you may have an additional case too.
Originally posted by @Pete Abilla:@John Collins good checklist. Do you share this checklist with your inspector?
Yes, they generally have a more comprehensive checklist in the written report but I like to make sure to emphasize the main ones. I have seen inspections charged at $300, $500, $675 and it really depends on the individual's thorough approach and attention to detail, not his price. If they go into it knowing that I know what I'm talking about and looking for, they will make sure to spend at least 4 hours there checking up on everything.
If you want a comprehensive mold test for areas with water damage history (not including remediation), or if there's been an internal leak, it's a little extra or $500 from another licensed mold specialist. But this is a last resort - first I focus on fixing any leak, removing all carpets and drywall in area, clorox and other cleaners... Then when I get the report I make sure nothing has been missed.
@Femi Ibrahim
What is their URL so I can avoid them?
@John Collins
This was a great post thanks!
Does anyone know of any longer form blog articles/books on conducting proper due diligence on a property?
Nice post. Thanks God i didn’t have as many issues as yours when i bought a property from NW six months ago.
I'm a real estate investor in DFW. I met with a representative from new western in Ft.Worth last fall. Something just didn't feel right so I said not interested.
@John Morgan I met with one of their reps in Ft.Worth. I'm so glad I didn't do business with them. They gave me bad vibes!
Originally posted by @Jay Hinrichs:Originally posted by @Sue K.:@Femi Ibrahim First, thank you so much for sharing this heart-breaking honest story with us all. I think the stories that include problems with investing are so important. It was a real kindness for you to share this.
Next, though, I really agree you should speak with an attorney. There is something called an "easement by prescription." You can Google it. But, basically, if the neighbors knew that your house was on their property and did nothing about it, then they basically give permission for it to be there. The use of the property has to be obvious - and obviously a house on someone's property sitting there in full daylight is obvious. Then, they have to have known about it, I think - it's been a while since I learned this law. And, I don't know TX law, so I'm not sure if there would be any difference as to the specific rules that may be different in TX, but, it's an old law from merry old England that made it's way to the US, so odds are there is some version that would apply to you in TX. A real estate attorney would know about it.
I wondered about title insurance, too. Nobody has mentioned title insurance, but if TX has some version of title insurance and you bought some - that should also guarantee against errors like property boundaries.
Maybe someone could suggest a good local real estate attorney for you there. Maybe reach out to the TX folk? But, I really think that you may be able to get around the boundary issue by claiming the neighbors essentially "agreed" to move the property boundary by not protesting when the building was built on their land. You might be able to start there. I mean, it's even a possibility that your lawyer could negotiate a settlement with the neighbor regarding agreeing to give you title to a strip of their land rather than fight in court over an easement by prescription. Then, the boundary issue could go away.
And then, maybe your lawyer could negotiate a settlement with the New Western's E & O insurance.
This may just come down to a lawyer working out a couple settlements for you. Take heart. It ain't over till the curvy lady sings :-)
Sue, prescriptive rights and adverse possession are very tough things to prove and take years.. and you normally have to pay the tax's on the disputed property which most don't do.
for a title company to insure the boundary's he would have had to buy and ALTA policy and most just use a CLTA which does not provide for boundary accuracy.. but your bring up good points.. I personally think the remedy is E and O insurance and sellers disclosures.. just because its wholesaled does not alleviate the brokerage or seller from providing Sellers disclosures we all see them if we are doing for real real estate deals with licensed agents. Then the disclosures could say they don't know nothing.. which indicates that one should really jump into due diligence.. I know when I buy foreclosures and exit.. on my disclosures there is very few things I attest to and I put at the bottom .. in the comments section buyer should conduct his or her own due diligence..
It depends on the state, but paying taxes is not required in all states. It's not required in CA, for instance, and in CA you can get a prescriptive easement in just 5 years - without paying taxes on the property.
A quick Google search showed me that in TX it looks like it's 10 years to prove an easement by prescription. I didn't look further to see if paying taxes is a requirement. But, a TX real estate attorney would know if it's an option in this case. It's definitely worth finding out. And, a consultation with an attorney is usually free. If there is a case to be made, then the attorney would charge fees going forward.
When negotiating with someone like the seller in this case, it's my opinion that the more ammunition you can show them as far as having a case against them - and their agent or whomever else was involved here - the better. If you can show them in a calm way that you have a case against their E & O insurance and possibly a case for a prescriptive easement and anything else that's appropriate, then it's easier to get them to the negotiating table in a mood to settle with you fairly.
In my opinion. At least this strategy had worked for me quite well over the years.
At any rate, it's important for people to know that you don't always have to have paid taxes on the adjoining property to be able to have a claim for a prescriptive easement. Not all states require it, including CA which does not require it. And if your state doesn't require that you pay taxes, then you need to find out how long the property has to have been used before you can claim a prescriptive easement. As I said, in CA it's only 5 years. It's definitely worth checking out. In my opinion.
And, as I mentioned, it's also always possible to negotiate to simply get the neighbor to deed over enough property to meet the boundary requirements so his property meets the setback requirements.
Lots of ways to skin this cat.