April 21, 2018

JF1327: Focus On What You?re Good At For Increased Profits with Sam Craven

Sam realized that he needed to focus on his strengths to have the most success. Him and his partner switched to a wholesaling model, and are now looking to buy other wholesaling companies across the country. His ultimate goal is to be one of the largest privately held home buying companies in the country. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Sam Craven Real Estate Background:

– Co-Founder of Senna House Buyers

-Took his company from $1.5 Million in sales to $10 Million in just 3 Years

-50% wholesale and 50% rehab

-String of big losses from 2016-2017 that added up to $767k in total losses

-Based in Houston, Texas

– Say hi to him at http://www.sennahousebuyers.com  

– Best Ever Book: Never Split the Difference

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Sam Craven. How are you doing, Sam?

Sam Craven: Doing great today, Joe. I appreciate you having me on the show.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Sam – he is the co-founder of Senna House Buyers. A couple interesting things about Sam and his company – first, he took his company from $1.5 million in sales to $10 million in just three years. Secondly, he had a string of big losses in 2016-2017 that added up to $767,000 in total losses, and three, his company is buying between 15 to 20 houses a month, and looking to grow by actually buying other wholesaling companies across the country.

Based in Houston, Texas… With that being said, Sam, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Sam Craven: Absolutely. I appreciate that introduction, too. So you kind of hit the nail on the head; I got started in this business just like a lot of us – we weren’t really happy with what we were getting out of life, we weren’t really happy making other people money, we weren’t really happy only getting two weeks of vacation a year, and I jumped in and actually started the company with my dad.

We have since taken on another partner. My dad is kind of a bit more in the background now. The other partner’s name is Matt [unintelligible [00:01:58].16] – we’re growing this company just as quickly as we can. We’ve had some really good luck growing our company in Houston, and also we’ve had some really bad luck, as you kind of alluded to there – ’16 and ’17 were kind of rough months for us as far as the house flipping goes… But what happened at the same time was we were going through these big, big losses, quarters of a million dollars in losses over the 24 months or so – we got focused on exactly what we’re good at.

So while we had all these losses that were coming in and we were losing money on these big rehabs that we were doing, at the same time our wholesaling business was accelerating; it was accelerating in the number of deals that we did, and it was accelerating in the amount of margin we made on every single deal… And we started realizing, “Look, we need to do what we’re good at, and what we’re good at is adding value to sellers and adding value for our end buyers.” We realized as much value as we could add on both sides of that transaction, the larger our margins grew and the faster our business grew.

So that’s exactly what we’ve done, and now we’ve really been lucky, and a little bit of good, and we’ve grown our business in an immense way. Our goal had always been to expand and be one of the largest house-buying companies that’s privately held in the country, and we believe we can reach those expansion goals through acquisition – buying other wholesaling companies in other markets… Because we realized something – a lot of people get into this wholesaling  business and real estate business because they wanna build a lifestyle. They build up the business to the point where they’re doing 75, 100, 200 houses a year, but they realize they don’t have the lifestyle that they want anymore, because they’re working 40, 60, 80 hours a week at the business. So there’s a lot of opportunity for people who want to stop wholesaling, that have built up a good amount of business in that market, and if they just shut the business off, they walk away from potentially a lot of money.

So we’re actively going out in the marketplace right now, finding these people, starting negotiations and looking to expand our company in these new markets.

Joe Fairless: Have you purchased a wholesale company?

Sam Craven: We have not purchased one yet. We’ve had a couple negotiations go pretty far. One we backed out of, because it just wasn’t a good fit for us…

Joe Fairless: What part of it wasn’t a good fit?

Sam Craven: That’s a really good question. When you’re going into business with someone and you’re buying someone’s business like that, you wanna make sure that everyone’s on the same mission. In this particular case, one partner loved us, we loved him, and the other partner was a good guy, but he actually wanted to stick around, which we were okay with – in fact, it certainly helps in the transition – but the missions didn’t align. We knew we could jump into it and make a lot of money; they were making a ton of money already, and we had agreed to terms on everything, but we on the Senna side of it couldn’t quite reconcile just those (I guess you could call them) creative differences in how you wanna grow the company and run the company, so we thought it would be best not to do that particular deal.

Joe Fairless: If someone is working 40-80 hours a week and they have a successful wholesale company – which really I don’t know if it’s a company; it’s more of a job… They have a  successful wholesale job, and you buy their company, and your value proposition to them is “Hey, now you can go do what you want.” Well, if they’re spending 40-80 hours  a week in that company, it sounds like they’re a pretty important part of it, and it’s gonna be some growing pains exiting them out of it.

Sam Craven: Absolutely, and that’s why I kind of mentioned it before – there’s gonna need to be a transition period where when we purchase the company, the owner is gonna stick around. We would like them to stick around as long as they can. But what we were able to do is our wholesaling company in Houston – it can run without me and my partners. We have the management in place, and things like that, and it’s just churning.

So we’ve already mastered all the systems and processes necessary to run a high-level business that’s doing 200, 300, 400 houses a year without the owner being there. So when we’re going in and buying these companies up, they’re in a similar shape that a lot of small business owners are in… Not just wholesalers or real estate investors – they found themselves, like you alluded to, they just have a job. It’s not a business that they own, it’s a job that they go in and do every day, that they have a little bit more control over.

So we’re gonna be able to insert our systems and hiring processes and things like that into that particular business model, which is gonna allow us to manage that business without us being there every single day. Now, you know there’s gonna be growing pains, there’s gonna be things you didn’t think about and all that kind of stuff, but we’re already got a lot of the nuts and bolts of how to run that business figured out, which we’re gonna be able to implement in that new business.

Joe Fairless: Between 2016 and 2017 you had $767,000 in total losses… I heard one thing from a lesson learned, and that is it sounds like you’re moving away from flips to wholesaling. If that is true, please confirm, and also what are some other lessons learned?

Sam Craven: That is true, we’re now a straight wholesale company. I think we spent a long time trying to be both, and we weren’t focused, and we weren’t getting good at all of it. And as soon as we got focused on straight wholesale, it’s grown even faster. But you know, some of the other lessons that we’ve learned through those losses is something I’m happy to share with you guys, and it’s why I bring it up… I think there’s a lot of people in this industry as a whole, we don’t like to talk about the losses or the bad times and things like that, but we learn so much from the times that — we get kicked when we’re down.

So one of the things that we learned is that we’re not good at managing rehabs; we’re just not good at it. We’re not good at picking the winners, we’re not good at managing that big job, and especially because actually all the money that we lost was in the really high, high end of the market; at least for Houston this is high end. So we’re talking projects that were over half a million, a million, 1.5 million or so… And you name it, we had this kind of stuff [unintelligible [00:07:52].20] We missed the ARV on a house, we missed the repair budget on a house, we had contractors screw us over… We had hundreds of thousands in losses; included in that are just some contractors screwing us over.

Now, it’s easy to say that contractors screwed us over, but the reality is we didn’t manage that contractor correctly to keep them from screwing us over. I’m a big believer in looking internally when you have issues like that. Like, “Okay, yeah, that person made a mistake, or that’s not a good person, but what could WE have done differently to keep that from happening?” So yeah, those are some of the lessons that we’ve learned over three quarters of a million dollars in losses.

Joe Fairless: I appreciate you sharing that, and as far as the flipside, the 1.5 million in sales to 10 million in three years – other than the focus that you’ve put towards the business, what are some tactical things that you’d say helped you from the 1.5 to 10 million?

Sam Craven: Ten million – that was just our first three years. We’re actually gross profit running about $300,000 to $400,000 a month in gross profit, just off of the wholesales… But tactically, I would say — I alluded to it a little bit, but value-add. It’s one thing for us to go in there and just try to get a house for as cheap as we can… But I noticed that the more that we focused on the needs of what our sellers wanted, what they need to get out of this, that big reason for them actually giving us a call instead of (say) calling a real estate agent, the more we were able to actually help them and the more margin that we created.

So what we do in our office is we have sales meetings every day, we have sales trainings every week, and then each salesperson is required actually to do – through some sales training that we have – some online sales training every day. And we realized the more that we’re focused on training our people and helping our people become the best that they could absolutely be, the better our margins got, the smoother our business ran, so on and so forth.

I think making that big investment in our people, and our process for negotiation and the way that we add value to our sellers – on the other side of it, adding value to our buyers is huge… Because one thing we do differently in our market than any of our other competitors (at least in Houston) is we actually put a guarantee on our ARV’s. We say “If you have an appraisal on this property within two months, or when you buy this house and you refinance it out to go turn into a rental, if we miss the number by more than 10%, we’ll write you a check.”

We do the same thing on the rent numbers. If we miss the rental target that we give you when we send out our blast, our marketing and things like that, by 10%, we again will [unintelligible [00:10:24].20] a check for $1,000. So we’re putting our money where our mouth is, and we’re making sure that our buyers are gonna hold us accountable to the marketing numbers that we put out, because I don’t wanna just do one job or one deal with someone, have them lose a bunch of money and never do business with me again; we want all of our clients to hit all of their targets and make a lot of money, so they can keep coming back to us and keep helping everyone make money.

Joe Fairless: Yeah, it’s really smart; a guarantee to put in place. I’m guessing only a handful – if that – have taken you up on the 1k where you messed up, am I correct?

Sam Craven: Yeah, it’s actually happened only one time on an ARV so far, and we gladly wrote the check. We missed it by a little bit, and the guys came back and bought from us again. And before we did that too, we’re really big on keeping data in our company, so we went back and looked at 200 different transactions and see how many times we would have had to have written that check for either a rent comp or an ARV comp. Over those 200 transactions, it would only have been one other time.

Because something else that we do too is we are actually gonna follow up in three months. After you buy a house from us, we’re gonna call you three months later and we’re gonna ask you, “Hey, how did you do?” So we’re actively following up and trying to get better every step of the way. We do the same thing with our sellers, “Hey, how did we do internally?”, things like that. Then actually our sales guys are bonused based on whether or not they’re getting good ratings from their sellers.

Joe Fairless: As far as the training that your sales individuals go through daily online, what program is that?

Sam Craven: Actually, it’s Grant Cardone’s sales training. They have to do 30 minutes of his online video training every day, and then every Thursday we come together and I actually put together an hour-long training on a specific topic. And actually for the last month we’ve been reading a book… So we read two chapters, we come in there and then I do a training based on those, and then people talk about feedback, specific deals, things like that, and then it’s just kind of more of a facilitation exercise after that.

Joe Fairless: What book are you reading right now that they’re doing?

Sam Craven: Right now we’re reading Relentless, by Tim Grover, but we’ve just finished Chris Voss, Never Split the Difference, and actually that’s the second time that we’ve read that book in our office. I love Chris Voss, the techniques and things like that that he uses. We implement those when meeting with homeowners, and things like that. I think that Never Split the Difference is one of the best sales books I’ve ever read.

Joe Fairless: What one tip has made you the most money from that book?

Sam Craven: Fantastic question. I think the biggest principle in the entire book, which we carry with us every day, is “Understand what the unknown unknowns are in the negotiation or in that sale.” Someone might call up and say “I wanna sell my house, and price is the absolute most important thing”, and that’s what they tell you. But if price was the most important thing, they would have called an agent and they would have listed the house. So it’s up to us, it’s up to our salespeople, it’s up to our team to find out what is that underlying motivation there. Why are they willing to come to us and take less money for their home? And as soon as we understand what that is, we can set up a win/win scenario for them that gets them exactly what they want at a price where we make our margin.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Sam Craven: The best real estate investing advice ever… I would say it’s persistence. I’m talking openly about the losses that we’ve had, the hard times that we’ve had, and we’re all gonna face that. We’re all gonna face a time where we send out a hundred letters and they don’t work. Now I’m sending 80,000 a month. Sometimes we pick a new list and it doesn’t work, but it’s okay; stay persistent, stay on top of it, never give up. This is a game of attrition, and any kind of business is a game of attrition. People are gonna drop out, they’re gonna get distracted by something else, but if you just keep going, if you stay on your path, you work with a purpose and you’re ethical, I think there’s just no telling what you can accomplish.

Joe Fairless: Some Best Ever listeners might take that literally with “Don’t give up”, but in your case, you were doing fix and flipping, and now you’ve — we’ll call it “give up.” Clearly, you’ve evolved, but you don’t do that anymore, you do wholesaling. So can you elaborate a little bit on the “Don’t give up” part?

Sam Craven: Sure, good point. Know your strengths. Understand what it is that you’re good at. You’re gonna have certain things that pop up and they’re gonna kick you in the balls sometimes. Know when to play to your strengths. We didn’t give up on real estate, but we understood what our strengths are. It was pretty clearly laid out as we saw that our margins grow and our business grows in our wholesale side of the company, and at the same time we had these heavy losses that we were taking on the rehab side.

Play to your strengths, understand your strengths. I say “Don’t give up in business.” Don’t overall just say “You know what, this business thing, this going out on my own thing is not for me.” We all thought that when we reached our first bit of adversity; there’d be a lot of people who would just quit way too early. Stick with what you know is right, but at the same time, don’t be afraid to pivot when the numbers and the reality is telling you something different.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Sam Craven: Let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:15:25].14] to [00:16:10].25]

Joe Fairless: Best ever book you’ve read?

Sam Craven: I wanna go with what I’ve talked about – Chris Voss, Never Split the Difference, though this Relentless book is pretty good.

Joe Fairless: Best ever deal you’ve done that we haven’t talked about?

Sam Craven: Best ever deal we’ve done… I did one particular deal — actually, we’ve done a lot of six-figure wholesale deals; we’ve got right now that’s headed to the closing table we’re gonna make $140,000 on.

Joe Fairless: What’s the most you’ve ever made on a wholesale deal?

Sam Craven: $140,000.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Sam Craven: Mistake on a transaction… Negotiating too hard. I did a deal one time – it was actually on a flip – and I negotiated too hard on the first deal that came in. We lost that particular deal, and then wound up selling it three months later for $40,000 less than what that offer was.

Joe Fairless: Best ever way you like to give back?

Sam Craven: I love to give back by giving my time to new entrepreneurs. I’m not a guru, I don’t sell my time or things like that, I don’t do coaching, but if any of your listeners would like to have an hour of my time, go ahead and reach out to me at bestever@sennahousebuyers.com, and I’m gonna pick one person at random; you’ve gotta like our Facebook page (SennaHouseBuyers.com), send an e-mail showing that you actually did it, and we’ll pick one person to give away an hour of my time to coach for you guys.

Joe Fairless: Sam, I appreciate you taking the time to spend with us sharing your lessons learned in your journey. Some things that stood out to me… One is being focused and playing to your strengths. Clearly, at the beginning you’ve got wholesale and fix and flip; one more successful than the other, so you go all in on the one that is more successful and that plays to your team’s strengths more.

Some tactical things that you shared with us that you do with your team… One is you do online sales training; your team goes through that every day. Then also a weekly training, where everyone is reading the same book and talking about a couple chapters from the book.

Then a differentiating point that your company adds relative to other companies is that if you miss your target on the rental comps or the ARV, you write them a check for $1,000. That definitely gives a sense of comfort for those who are buying from you… And even if other are on par or even more accurate, then your team will likely get the lead on that because you’re going to have the perception of being more accurate because you’re willing to put your money where your mouth is.

Thank you for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Sam Craven: Thanks you so much.

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