Nothing but Net (Margin)- Rosario Terracciano, Clickinvest

Matt Rodak:

I appreciate you taking the time. Get us going; tell us a little bit more about Clickinvest, how it came to be, where you guys are at, and what you're all about.

Rosario Terracciano:

Well, I got into the real estate business in 2003. I traded futures before that, and then because of a series of events that happened in my life, I got in real estate. I dove into it headfirst and worked for an REO broker for the first couple of years. This is going back to 2003, so, wholesales for the first couple of years. In 2005 I got the itch and started rehabbing for myself, built a small rental portfolio, and was doing a ton of flips as well. I got married in 2005. We had our oldest son in 2007, and lost everything in 2008. Great timing. The market turned, I was not ready for it and got completely wiped out.

All along the way though, I've been blessed with good mentors, good people in my life, and good people around me. One of them, in 2009, blew the doors wide open for me and started connecting me to a lot of servicing companies. When I say servicing companies, these were the companies that were now selling all of these foreclosed properties for Fannie Mae and Freddie Mac and all these big institutional companies. We launched Resurrecting Real Estate in 2009 and quickly became one of the top REO brokerages in our state. All we did was sell REO properties. We went from selling 150 homes in our first year to 640 homes in our top year in 2013. We were nationally recognized and we were ranked fourth nationally by Wall Street Journal for units sold. It was just a straight incline, it was like a rocket ship. What ended up happening though, like most rocket ships, they have to come down.

In 2014, one of our largest clients -- it was really the perfect storm for us. We were selling properties for the banks, and then we started working with hedge funds that were buying properties -- which was a lot of fun -- up until 2014 when our biggest client decided they were done buying. They gave us a phone call and said, “Hey, great job, we'll call you if we need you.” So I went from a staff of 60, and over the next six months had to funnel that down to 6. It was a complete bloodbath.

Matt Rodak:

You've ridden a few waves here in the different cycles.

Rosario Terracciano:

Yeah, I had somebody tell me once that I must have a really high tolerance for pain for all the abuse I've put myself through.

Matt Rodak:

It's all about enjoying the process, though, I guess they say.

Rosario Terracciano:

I'm still trying to find the enjoyment in it, but for sure.

Matt Rodak:

So 2014, your biggest buyer says, “We're done”. You had to go down to a skeleton organization. How did that lead you to where you're at today?

Rosario Terracciano:

Great question. I've always been a systems guy. When I work with these banks on the sell side and then work with these hedge funds on the buy side, they saw that and that's what drew them to us. I've always been a systems guy, but I like Henry Ford, and unfortunately assembly lines with human capital are very, very expensive. My payroll was $150,000 per month and I had 60 people. I had this giant machine running, but it was a very manual process. It worked, and we did volume, but it was very expensive. When our biggest clients stopped buying and I had to scale back, I knew we had something because we had lenders and investors approaching us saying, “Hey, you did this for these big funds, can you do it for us?” I thought, Oh, gosh, how do we rebuild this now without all the overhead? That's really where the idea or Clickinvest was born out of that pain.

Essentially what Clickinvest is -- we automated 80% of the process that we needed humans to do, created a lot of efficiencies in our system, added algorithms and data feeds and using big data. I don't want to say A.I. just yet, but we're pretty close to it. Definitely machine learning and understanding how the market works to funnel and find the best deals in the market, and then get those out to our clients.

Matt Rodak:

Walk us back a little bit. How does Clickinvest work? Where are you guys getting data in, what are you doing to it and how is that helping your clients make informed buying decisions? You're mostly representing on the buy side right now, right?

Rosario Terracciano:

Yes. All buy. We do disposition as well, so we do list for our clients at a discounted rate, but acquisition is our bread and butter by far. I'll walk through it. In the old days -- which is how a lot of investors still do this -- you set up the search on Redfin or on the MLS, or your broker does for you. It's constantly refreshing and properties will hit, but then you've got to take those addresses and dump them into a deal calculator.

Then you start making all these assumptions like, what can I sell it for? What's the rehab estimate? Then based on that, what can I offer? And then based on that, what's my return on investment? So, you're dropping a lot of these data points into an Excel sheet, an analyzer or whatever, just to determine if the property is worth going after. Then the next step is you determine that a property is worth going after and now you set up an appointment. Maybe you go out to it the day after it hits the market. So you get out there -- and you and I both know the market is uber competitive right now -- you get out to the property, and there's 15 guys there. Oh my goodness, this is a joke, right? You still proceed to move forward and walk through the property with your contractor, get the bid together, do all that going back and forth, and haggling over pricing.

Then you finally get set on a number and you ask your broker to submit the offer. Now, you may be two days in. Your broker submits the offer and the deal's gone. So all that time, all that energy wasted on one deal. With Clickinvest, we've eliminated all of that back and forth. Through data feeds and through algorithms -- and for you guys that don't understand what an algorithm is, think of it as a giant filter. When you go to Redfin, you drop in an address, you enter some criteria and it spits out addresses. Those addresses are great, but there's no investment criteria baked into it. In our system, deals are coming to you based on whatever you filled out in your profile. It's like your shopping list; you enter what you want and you enter what your cost is.

So, if you're working with Fund That Flip, you'd enter what your interest rate is, what your points are, your buy-side cost and your sell-side cost. All of your costs are baked into every single deal. Once you hit enter, deals will start populating in your dashboard based on whatever you selected in your profile. You're going to see what the estimated net profit is and what that return on investment is, based on your profile.

Matt Rodak:

That is more or less to say that we've got to make some assumptions around how much work has to go into this property, but if we bound it at $50,000 to $80,000 -- or whatever the bound is around rehab portion of the budget -- you can pretty quickly back into the maximum we should offer on this property. So, are your clients submitting offers property unseen?

Rosario Terracciano:

Yes. What separates us is the algorithm filters, but every deal that gets placed in the dashboard or gets emailed to the client is vetted by an in-house analyst. Our rehab figures are going to be pretty dialed in based on our experience. I didn't mention this, but my partner worked for one of the largest real estate hedge funds in the world. So between the two of us, we've done over 7,000 transactions, and I've analyzed over 100,000 properties. We put our brain power together, and based on market knowledge and a whole different set of variables, we can get pretty close on what that rehab is going to cost, depending on whether it's a cosmetic or a gut rehab.

The system will make assumptions, but then the in-house analysts who are both licensed -- one is a licensed appraiser, one is a licensed broker -- will then dive into that address, spend a few minutes and confirm yes. Based on what we're seeing, here's the rehab number, here's the ARV, and then here's what we suggest you start at as far as a good offer. The investor can click Submit Offer with confidence and get their offer in sight unseen without having to walk that property.

Matt Rodak:

This all obviously sounds cool conceptually. I'd love to know that this is real so I'm going to ask this question: You guys are doing a decent amount of properties per month at this point through this exact system? This is working for people?

Rosario Terracciano:

Yes. We're sending out, on a weekly basis, about 150 properties that go out through our platform to our community -- and that's just in the Chicagoland market. Anybody that thinks there's not enough deals out there, we're sending out a 150 deals a week within a 60-mile radius. There's a lot of opportunities there. Based on that, our clients are submitting about 200 to 250 offers a week off of those 150 properties. There's a lot of bandwidth. On a monthly basis our hit rate tends to fall around 5%. If you know anything about direct mail or any type of marketing, that's not a bad number.

Matt Rodak:

It's a numbers game.

Rosario Terracciano:

Yeah, if we submit 1,000 offers on a monthly basis to get 50 accepted -- which is really the goal -- is attainable, and we do it quite consistently on a monthly basis. I'd say 50 to 60 accepted a month.

Matt Rodak:

That's great, that is really cool. As you know you've seen a lot of different parts of these cycles. Our show is called Real Estate Investing Unscripted because we like to hear from our guests the things that you've seen either at a project level or a market level that you think, whoa, I didn't read about this in any of the books, at any of the seminars or from any of my mentors. What was that story? What happened and how have you used that to plan and inform either your current business or helping your clients and how they think about their business?

Rosario Terracciano:

Great question. A lot of you guys I'm sure watched a TV show, you read a book, or you went to a seminar and that's what got you excited. For myself personally -- just getting vulnerable here -- I was in a really dark place in 2002, 2003. I was trading futures and it just wasn't going anywhere. Clerking, turning for the exchange. I literally had a huge, major life event where I was in a pretty dark place. I started reading a book and that book led me to the Bible and literally changed my life.

I got my head clean, stopped doing a lot of nonsense that I was stuck in, and now I've got this clear mind. I jump into a real estate book and think I'm going to go out and become this big real estate tycoon. Like most investors, you end up going big too fast, if that makes any sense. To give you an example, in the last few years I've come across investor after investor, after investor that jumps into real estate because something happened in their life, and now they want to take a totally different direction. Their head is in the right place -- they want to build a legacy for their family, they want to provide for their parents or for their great grandchildren, and leave this crazy legacy -- but they're sold on 'you got to go big'.

Just over the last few years, to give you an example, investor after investor, after investor that took on a new construction or a two flat de-conversion or building the second story addition, because that's the stuff that sells when you're watching HGTV. That's the stuff when you turn on the TV, you think, Oh man, look at that massive project. I want to do that. Well, most of the clients that I know that went into those types of projects didn't win. A lot of them came out pretty beat up. The best advice I can give somebody is: real estate is a business no different than any other business. You need to build it on the right foundation and you need to have the right principles in place. For me, working with guys that have done hundreds of flips or own hundreds of rentals, it's literally keeping it very, very simple. It's focusing on a segment of the market that's repeatable, that's scalable, that you can balance and protect your downside risk on. That if a property doesn't sell -- God forbid -- you can rent it out and still be okay. A lot of investors, unfortunately, are sold the wrong information. They jump in head first and go big, and their entire future rests on one deal. If that one deal goes sideways, they're out of the business.

Matt Rodak:

I forget who said it, but someone said they love boring businesses because boring businesses make money. My business has been designed to be very, very boring. That's the big disservice that a lot of these shows do is they try to make the the business super sexy. I'm with you. I love the -- depending on the market you're in, maybe in Chicago, it's an 1,800 square foot 3:2 -- if you can't sell it for what you want to, you can put a tenant in there and get a 10% cap rate and still make good money. Boring, but also not boring to be making money.

Rosario Terracciano:

Yeah, and you and I both know a gentleman by the name of Andrew Holmes. He's built his business on boring and now he's doing a lot of fun things. He bought a plane, has a sports car, and has all this stuff. He built all that off of a boring business. So the business doesn't have to be exciting. The business needs to be profitable. That would be the other thing I tell the listeners is, you have to understand your margin. Your gross margin is gross. It doesn't mean anything. Top line means nothing. I was the top broker in Illinois -- I was ranked fourth nationally, all that stuff. Millions of dollars over a few year period. $9 million within three years, but that means nothing. At the end of the day, my net margin is what mattered. And I didn't understand what margin was.

Matt Rodak:

What do you put in your pocket at the end of the day. That's the only thing that counts. That's the scoreboard in this business.

Rosario Terracciano:

Yes. It's funny because my kids -- I’ve got two boys, I love them, they're 11 and 9 -- and I wanted to toss all my trophies and all the awards and all the nonsense because you can't do anything with it. They're like, oh no, dad, we want to keep it. So I'll walk by their rooms and see my “Young Top Broker” award and all this stuff and think, Man, I can't cash those. You can't do anything with them. Anytime somebody is yapping it up, a lot of it is smoke and mirrors. What you need to understand at the end of the day is, what are you putting in your pocket? Like you said, what's your net margin? Understand what that is and then that's how you build your business. Because gross is exactly what it is. It's gross - it doesn't mean anything.

Matt Rodak:

There's a term in the startup world which we both operate around called vanity metrics. These metrics make everyone feel good. They're big and they're awesome, but at the end of the day don't have a positive or negative impact on the business. Reading between the lines a little bit, decide what you want to be when you're a real estate investor. Is it a business or is it a hobby? If it's a hobby, it might be okay to take on the cool, sexy project that you can show all of friends all the awesome finishes. But, understand that if it's a hobby, hobbies cost money. You don't make money generally with hobbies. If you truly want it to be a business, you've got to separate yourself from what may be perceived as cool or fun or sexy, and really focus on where you can make money.

Rosario Terracciano:

I agree 100%.

Matt Rodak:

You guys are primarily in the Chicagoland area right now. What's the plan? I think there's some expansion markets in the future. What's the next call in 6 to 12 months and where do you see this going five years from now for you guys?

Rosario Terracciano:

We are already licensed in Florida, we're licensed in Georgia, and we're licensed in Minnesota. Don't ask about Minnesota. That was just sort of grandfathered in because we're already licensed there. So we're setting up operations now in Orlando and Tampa. Then, we're going to be opening up an office in Atlanta. From there, over the next 12 months we really like being southeast. We love those markets, so God willing, as operations pick up in Florida and in Georgia, then we'll start branching off into some other states neighboring states down there.

Matt Rodak:

So when you say you’re opening offices, are you putting people down there?

Rosario Terracciano:

Oh, yeah, it's boots on the ground. So what we've learned is -- there was a time where we licensing this out and the results weren't as good as our local office, what they were doing internally because we built all sorts of tools for the brokerage as well. So, we brought everything back in house and we have these pods. In Illinois, for example, the brokerage team is just a pod of four people, and they can service 150 clients and submit hundreds of offers on a weekly basis. It's a very, very efficient, high-margin model. So what we're going to do in each state is drop in another pod. We already have our team lead in Florida and then we're going to staff up around him, and off we go.

Matt Rodak:

Awesome. So investors that are listening, obviously Chicagoland, check out Clickinvest. Those of you down in the southeast to keep an eye out for these guys. A really cool service that we've seen some of our clients here at Fund That Flip benefit from. To that extent, people want to get a hold of you. How do they get a hold of you if they have follow-up questions or if they want to learn more about what you guys are doing. What's the best way to reach out?

Rosario Terracciano:

The best thing to do is email me at Rosario@clickinvest.com, or hit me up on my cell: 708-369-3151. Depending on the market, I'll funnel you to whoever can help.

Matt Rodak:

Don't prank call him. That's the first time I've gotten a cell phone on the podcast. That's awesome. A level of service you get here at Clickinvest, guys.

Rosario Terracciano:

It's all about that at the end of the day. You could have all the tech in the world, but if the service isn't there, it's useless.

Matt Rodak:

Phone calls and texts, most of our borrowers now are on text chains. So it's good stuff. Rosario, I really appreciate you spending some time with us and sharing your story. This was super awesome. Thanks so much for being part of the show.

Rosario Terracciano:

You got it. I appreciate the opportunity and I'm here for you guys. Anything I can do or any way we can help, we're there.

Matt Rodak:

I appreciate that so much. And thank you all out there for listening. For more great resources or to get funding for your next project definitely head on over to FundThatFlip.com. Otherwise, look forward to having you with us on the next show. I'm your host, Matt Rodak, signing off.

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Thank you for listening to this episode of Real Estate Investing Unscripted. For more resources or to fund your next project, head on over to FundThatFlip.com. 

Contact Rosario at Rosario@clickinvest.com, or call 708-369-3151. 

If you’re doing deals in the Chicagoland area or central Florida, check out Clickinvest to get better deals in your inbox daily. Use promo code FUNDTHATFLIP for a discount off your subscription.

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