April 11, 2018

JF1317: Trouble Finding Deals? Clickinvest Can Help with Rosario Terracciano

Rosario shares his real estate investing story with us as well as explaining how his brokerage and online platform, Clickinvest helps investors find deals. From taking hits and being able to bounce back, to easily finding deals via his platform. We can all learn a lot from this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Rosario Terracciano Real Estate Background:

-Co Founder and CEO of Clickinvest

-Began Real Estate career 2003 when he partnered with a Real Estate Broker specializing in distressed real estate

-He has sold over 2600 properties and in 2013 was ranked 1st in IL & 4th nationally by WSJ for units sold

-Now in his 15th year working exclusively in investment real estate he has launched Clickinvest.com

-Based in Chicago, Illinois

-Say hi to him at www.clickinvest.com and 708.369.3151

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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, Rosario Terraciano. How are you doing, Rosario?

Rosario Terraciano: I’m doing great, man. Thanks for having me on.

Joe Fairless: Yeah, my pleasure, nice to have you on the show. A little bit about Rosario – he is the co-founder and CEO of Clickinvest. He began real estate in 2003 when he partnered with a real estate broker specializing in distressed real estate. He has since sold over 2,600 properties, and in 2013 was ranked first in Illinois and fourth nationally by the Wall-Street Journal for units sold – very impressive. He is based in Chicago, Illinois.

With that being said, Rosario, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Rosario Terraciano: Yeah, absolutely. Thanks again for having me on. I got in real estate in 2003 as you mentioned; prior to that I was in the financial markets; I was trading EuroDollar futures and S&P futures, and it was time to move on. I dove in head first, and for the first couple years I was a wholesaler; I’m sure a lot of the Best Ever listeners know what that is. I was finding deals that were off market, getting them under contract and then wholesaling them out to investors that I was connected to.

I did that for the first couple of years, then got the itch and in 2005 I started building a rental portfolio for myself, I started raising money from family and friends, and doing flips along the way. I got married in 2005, had our oldest son in 2007, and then got completely wiped out in 2008. The market turned, and I was not ready for it… But I was blessed with having good people around me, and that led to launching Ressurecting Real Estate in 2009, which eventually became Clickinvest.

Within the first few years of launching Resurrecting Real Estate, I quickly became one of the top brokers in the Chicagoland area. In 2013, as you mentioned, I ranked first in Illinois and fourth national by the Wall Street Journal for selling 640 homes in one year, that year in 2013. In 2014 I began building out what is now Clickinvest, and in 2016 I partnered with Jeffrey Kershner; he ran the Midwest operations for Invitation Homes, which is a huge hedge fund in the marketplace, and he bought over 4,000 homes for them just over a two and a half year period or so. Then today Clickinvest is just pounding away doing what we do, helping local investors in our marketplace.

Joe Fairless: So your business model now through helping local investors in the marketplace is to do what?

Rosario Terraciano: Taking what we’ve learned being on the REO side and then being investors for ourselves, and then working with these large hedge funds, we saw there was a need in the marketplace for not just a system, but also a team that’s experienced in identifying buy and flip opportunities or buy and hold opportunities in the Chicagoland market. Basically, what we’ve done is we’ve built a proprietary system that identifies deals in the marketplace, goes through thousands of deals a day, filters it down to the best deals based on an ROI or based on a yield if you’re looking to hold the property, and then we have an in-house analyst that will do the final review, package everything for that client based on the client’s numbers, send it to them right to their inbox, and if they like it, they can click a button and submit an offer within seconds… So just expediting the whole purchase process for them.

Joe Fairless: That’s a very turnkey business model, I love that. That’s pretty cool. I wanna spend most of our time talking about Clickinvest, but based on your background and your story, I’d love to ask just a couple follow-up questions, if that’s fine.

Rosario Terraciano: Yeah, absolutely.

Joe Fairless: Let’s see – 2008 hit, you said you got wiped out, the market turned and you weren’t ready… What was the cause of the portfolio getting wiped away?

Rosario Terraciano: I had no idea what I was doing. I’m not sure if anybody listening can relate to this, but I read a book, I got super excited, right…? I’m an excitable guy, I’m very passionate — I saw a show, or two, or three, and thought “Man, this looks really easy.” Back then it was super easy to get money; you were paying super high interest in points, not like today, but it was easy to get money. I raised some money from family and friends along the way as well, and I went out there not knowing a thing about construction, not knowing a thing about how to screen tenants, and got ripped off left and right by contractors, because I had no clue.

I didn’t have the right mentors around me to really come alongside and say “Hey man, do you even know what you’re doing?” I was like, “Yeah, I wanna build a rental portfolio and start buying rentals. In a few years I’ll have a hundred and I can sit back and retire on the beach.” That’s the biggest reason by far – just mismanaged and clueless about what it took to run a portfolio.

Joe Fairless: Cool. Alright, I appreciate you sharing that. The last question I have on this and then we’ll move on to present day… With your investors, I imagine they lost money with you… Because 99% of the time we always hear about “Raise money, bring in investors, two thumbs up, sunshine, roses and puppy dogs”, but then what happens in a scenario where you lose money? Can you tell us about that and maybe some lessons you learned there?

Rosario Terraciano: Yeah, so I’m known for getting beat up quite a bit, and being totally free in sharing my story, because my prayer in this is that people avoid the same mistakes I made, right? So when I partner with family members or partner with friends, thinks about that – these guys were not in a position to invest, most of them. They saw that I was having success, because in an upward market, everybody was having success… Or in an appreciating market. So they started whipping money at me, like “Man, turn money for us!” So I started turning it, and I went from saint to devil within a year and a half. I was literally making everybody money, and then lost everybody’s money… So imagine that, showing up at Thanksgiving and your brother doesn’t wanna talk to you. So not only did I lose money, I lost friendships and hurt some close relationships through it for sure.

Joe Fairless: What advice would you give someone who is contemplating bringing in investors for the first time, knowing what you just said and your experience?

Rosario Terraciano: Are they accredited? Are they a real investor? Because somebody that’s just got 20k or 30k sitting down on the sideline, to me if they don’t have the experience and if they can’t afford to lose that money, they’re not an investor. It’s not worth it. There’s plenty of money in the space today, whether it’s lenders or private capital… Even some banks have just gotten a lot looser when it comes to real estate. Go to the pros. If the banker or lender doesn’t wanna give you money for the deal, then you really need to call a time out and ask yourself why. “If they don’t wanna give me money, should I be going out and taking someone else’s money?”

I’m a big believe in private capital. We have clients that raise money from private capital sources all the time, but these guys know what they’re doing and they have a track record, and they choose to do it not because they can’t get approves from a lender or a bank, it’s because ease of the deal, or whatever, it’s their choice. But if you’re getting declined by lender after lender after lender and all these other sources, I would really just pump the brakes a little bit before you go asking your brother or your cousin or your friend for money, if they’re not in a position to lose it.

Joe Fairless: And just so I’m crystal clear, your business model was fix and flipping?

Rosario Terraciano: Back then it was fix and flip and buy and hold. As I was flipping deals, I was rolling the money back in and buying more rentals.

Joe Fairless: And the domino effect was that those rentals weren’t cash-flowing enough to service the expenses when the market turned, so you lost them?

Rosario Terraciano: Yes.

Joe Fairless: Got it.

Rosario Terraciano: So what happened was I would buy a house for 60k, the contractor told me 25k before we closed, and after we closed it’s now 45k. So yeah, I couldn’t weather the storm, and then the second one person missed – as you said, domino effect and that was it.

Joe Fairless: Got it. Well, I sincerely appreciate and I have little prayer hands right now – I don’t know why, but I’m sending this your way… I sincerely appreciate you sharing that, because as you said, it’s something that’s very valuable for everyone to hear, just a cautionary tale, so thank you for that.

Rosario Terraciano: Absolutely.

Joe Fairless: So since then — that’s in the past, it was ten years ago… Holy cow, that was ten years ago.

Rosario Terraciano: Yeah, way too fast…

Joe Fairless: That was a decade ago… Welcome to today, Clickinvest – what is the number one challenge that you have with Clickinvest right now?

Rosario Terraciano: I think just in general, for real estate investor, and I’m sure you’re experiencing this where you’re at, but definitely in our market it’s inventory. Real estate inventory, specifically distressed inventory, is down 60% in the Chicagoland market just in the last two years. So the average flip for an investor is at a nine-year low. A lot of our clients were used to doing five, six, seven flips a year. Now because inventory is so tight, they’re doing three flips a year, or four flips a year. And when your average profit is let’s say $30,000 a flip, well if you’re doing one to two less flips a year, that’s a big hit to your income and to your lifestyle. So a lot of these guys are just stretched, because with less inventory, it means you’re putting in a lot more time just to find a deal, so your return on time is just really getting crushed.

So I would say that’s the biggest pain point for sure in our marketplace with our clients – the inventory side.

Joe Fairless: Do I have to log in to Clickinvest or something in order to see the deals, where then I click and make an offer, or is there some sort of login process?

Rosario Terraciano: Yeah, absolutely.

Joe Fairless: Okay, so the follow-up question then is when I log in and I see those properties, are they just properties that are listed, or are they properties that you also have another means of getting through different tactics?

Rosario Terraciano: We source multiple ponds. One of the first things I tell a potential client is “Hey look, we’re not a silver bullet. We’re not gonna be the beginning of the end of sourcing for you. We’re gonna be one of your ponds, and we hope we’re gonna be your best pond.” But in today’s market, you need to be working with wholesalers, you need to be working with local brokers that have pocket listings… If you have the cash, you need to be going to auctions, you need to be fishing on the web for online auctions as well, like the Hubzu’s and the Auction.com’s and whatnot.

So what we do is we try to pull in as many sources as possible into our system. The only thing we’re not touching right now are share of sales. But we’ve got wholesalers that we’ve vetted out that we feel do a great job; they bring us deals. We work with the Cook County Land Bank, which essentially is a middleman between Fannie Mae and Freddie Mac in our area, and these are all pre-listed REO’s; we’re their biggest strategic broker. And then we have brokers that are constantly bringing us pocket listings and whatnot… But the MLS has still been our best source because of the technology we’ve built and because we have the ability to go through thousands of properties a day and find those opportunities that a lot of people just aren’t willing to sit down and hit refresh every minute 24/7, waiting for that deal to come out, and then have it completely analyzed according to your deal analyzer, with your cost of capital and your buy side and sell side costs.

So every deal that our client gets has all of their numbers baked into the deal, so they’re seeing the true net profit and the true ROI on every single deal, so they can quickly submit an offer.

Joe Fairless: That is beautiful. What a smooth system that you’ve got, and it really should be a system in every market. Have you thought of doing some sort of licensing or franchising?

Rosario Terraciano: We have. So the goal right now is to get into Florida. We feel like we’ve got a good handle on the Chicagoland market – we’re doing flips, we’re doing rentals… The next market will be Florida, and then once we have a grip on another market, then I think we’re gonna seriously consider whether it’s licensing or just expediting our growth with partnerships or whatnot… But yeah, it’s a life-saver.

We have clients that literally — can I share an example?

Joe Fairless: Please do.

Rosario Terraciano: Okay, so the typical call I get is an investor who’s like “Man, there’s no deals.” I go “Well, we did 47 last month.” [laughter] “No, you don’t understand…” “Well, I understand, but we’re seeing deals, we’re getting deals.” We had so many that signed up within the last week… Before she signed up, she said she spent money, got set up, got educated, did all the things you’re supposed to do; one year later she still hasn’t done her first deal, and she’s like “This is ridiculous. I don’t know what to do.”

Well, another client signed up I think the day before I had the conversation with her… Within two hours got his first deal accepted. That’s not the norm, mind you, but the point is instead of running the 20 or 30 or 40 properties a week, which is what most investors are doing now, only to find that the deal is already gone or that there’s 15 investors lined up outside that door, we’ve built everything in a way that we’re giving you all the information, all the data with the rehab estimate, ARV, all the comps, even a suggested offer price, so that you can review the deal and submit an offer site unseen with confidence, right from your phone. And then we go to town negotiating that deal to get it locked up for you.

So instead of running through 20 or 30 or 40 properties a week that will take you 40 to 50 hours and then doing all the research yourself, within 20 to 30 minutes our clients can literally submit 20 to 30 offers and get them in, and then it’s just a numbers game.

Joe Fairless: What are all of your revenue streams for this company?

Rosario Terraciano: So it’s a subscription model, and it’s two-fold. Every client pays a monthly, because you’ve gotta pay just to have access. There was a time where it was free, and we had an army of tire-kickers that just wasted our time. So it’s a monthly fee to get into the system, and then we have our brokerage, because Clickinvest is a brokerage; it’s not just software. So we have in-house brokerage that does everything – your offer submissions, negotiations, escrow, coordinating delivery of earnest money, coordinating your appraisal inspection, contractor bids… Anything you need, it’s in-house, to get you to the closing table. So it’s all done right in our office, with our team.

Joe Fairless: And then do you have a property management arm?

Rosario Terraciano: We do not. We’re focusing right now on what we feel we’re best at and it’s the acquisitions. We’re not even doing the resale. We do have a ton of partners that we work with that we’re happy to refer out. Anytime we refer out, we don’t make anything; it’s just these are guys that we trust in our marketplace, that we’ve vetted during these 15+ years, and we’re like “Hey, these guys are good.”

Linda Liberatore referred me to you – she runs a management company in Illinois, Secure Pay One, which is like half the cost of traditional property management, which is crazy. So we like to open our network up to our friends, and we tell our clients “Hey look, if you need an attorney, here’s this guy. If you need  property management, here’s this person. If you need an education provider or somebody to just help take you to the next level, here’s this person.” So we feel by being that hub we can really help our clients just cut down the learning curve, if that makes sense.

Joe Fairless: Absolutely. It’s such an intuitive business model, too. Those two revenue streams are very logical, that makes a lot of sense. There are costs associated to the software development and maintenance, as well as the team, and then just the value that’s created through the subscription, and then the brokerage – obviously, that’s pretty simple for what you do there… Not simple for what you do, but just to understand why you have that in place. And I forgot Linda introduced us… Now I connected the dots right when you said that.

When was Clickinvest founded?

Rosario Terraciano: 2014 is when we started to build it out internally, but it officially launched last year in 2017. So we converted Resurrecting — well, really we merged Resurrecting Real Estate, which was the brokerage, with Clickinvest, which was the tech arm, and now it’s all bundled under one banner, which is Clickinvest.

Joe Fairless: And why change the model from what you had in 2013 when you were being recognized by Wall-Street Journal to something different? It seems like that first thing was working really well.

Rosario Terraciano: I love you… That leads right into one of the nuggets – knowing your cost. I told you I’m like a student of pain, I guess… So all that stuff is fluff, man… I can’t stress that enough.

Joe Fairless: We don’t like the fluffy stuff here.

Rosario Terraciano: Well, you’re gonna love me then, Joe. [laughter] So everybody’s like “Oh my gosh, top broker! Wins fourth nationally! Blah-blah-blah…” I didn’t understand margins. I didn’t understand my cost, and I think that’s a big mistake that a lot of people make, but I’m just gonna [unintelligible [00:20:22].14] So I go into this and I was so bent on being number one and top line and selling more real estate than anybody else, and paid no attention to my bottom line, none whatsoever. So I had 25 people in my office, I had virtual assistants in the Philippines and India, I had field operations… I had this crazy heavy operation, and overhead was through the roof. Nine million bucks over a 3-4 period (maybe less), but my margins were ridiculously low. And at the end of the day I’m like, “Okay, time out.” I just hit the top of our game and had nothing to show for it — I don’t wanna say nothing; a ton of experience, but not as much as I thought from the financial side… My poor wife and kids, they’re like “Wait a minute, weren’t you like number one?” “Yeah…” “Weren’t you ranked fourth?” “Yeah…” [laughter] “Why don’t you have the fancy car and why aren’t we in Hawaii for a month or two?” I’m like, “Well, kids, you’re gonna learn about margin.”

It was just ridiculous, so I called a time out in 2014, I’m like “I can’t do this anymore. I can’t run at this speed anymore”, and my solution back then was just hire more people, like that solves problems. That’s not what’s gonna solve problems. You have to leverage technology, you have to outsource your low payoff activities, and you have to really figure out what your return on time is, because at the end of the day… Investors always make this mistake, I deal with it every day – they’re always looking at the gross. Who cares about the gross? What’s your net? What are you walking away with at the end of the day, and then back into everything?

So the reason we made the switch was I, number one, couldn’t maintain the amount of staff I had, because the overhead was 150k/month just in payroll. And then number two, I’m like okay, if we’re going to do this because we know we have a system that works, how do we automate 80% of the processes? And that’s where Clickinvest was born. We said, okay, let’s take the filtering of properties, let’s take the transaction coordinations, let’s take the contract creation — we had two people full-time just drafting contracts. Now one person could send out 200 offers a day, with technology and what we’ve built out.

So we had to rebuild to survive, or there was no way we would have made it, not a chance. And then along the way we figured out “Wow, we have something really cool here, and this can help a lot of people.”

Joe Fairless: Thank you, again, for sharing that. That is a lesson that we all should pay attention to… If we’re not, then we’re gonna have a similar story that you just had, where we’re gonna reach the top of the game from a perception standpoint, but then have not a lot to show for it monetarily. And your return on time, as you said, is something we need to focus on… And the net — not the income coming in, but what you are actually putting in your bank account.

Based on your experience in real estate — we’ve talked about a lot of lessons and a lot of advice… What is your best real estate investing advice ever?

Rosario Terraciano: I would say just driving home knowing your margins… Going back to that and just understanding that. What do you want? Everybody wants to make a million bucks. You know, been there, done that; it’s not gonna give you happiness. It will help a little bit, but believe me – happy wife, happy life. I’m a man of faith, I’m involved in my church, my kids are a huge blessing to me… That’s what fuels me nowadays. So don’t get so caught up in top line, and when you get there then you’ve made it, because when you get there, it may not be where you wanna be… If that makes any sense. Or when you get there, it’s not what you thought it was gonna be.

So just work smarter, pay attention to your return on time, because what you don’t wanna do is lose ten years of your life only to look back and be like “What the heck was that for?” And even worse, be like me – spend ten years of your life, and then look back and be like “And I didn’t even make what I thought I’d make.” [laughter]

Joe Fairless: But you had a really good story to tell us, so it’s all worth it. [laughs]

Rosario Terraciano: Yeah, there you go.

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

Rosario Terraciano: Yeah, let’s do it, man.

Joe Fairless: Alright, perfect. First, a quick word from our Best Ever partners.

Break: [00:24:54].09] to [00:25:26].24]

Joe Fairless: Best ever book you’ve read?

Rosario Terraciano: The Power of Positive Thinking, Norman Vincent Peale.

Joe Fairless: Best ever deal you’ve done?

Rosario Terraciano: I would say a deal — pulling in 300k in commission in one month was pretty sweet.

Joe Fairless: And that’s profit, yes?

Rosario Terraciano: [laughs] That was gross.

Joe Fairless: Oh, we’re still talking gross, huh?

Rosario Terraciano: [laughs] Oh, man, I know…

Joe Fairless: Old habits die hard, right?

Rosario Terraciano: Absolutely.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Rosario Terraciano: Assuming. Never assume. Assuming that somebody’s dropped off earnest money, or assuming that a house still exists. Because sometimes they get torn down before closing.

Joe Fairless: What’s the best ever way you like to give back?

Rosario Terraciano: God willing, one day I’d love to get into full-time ministry, whether as a pastor, or youth minister, mentor, whatever.

Joe Fairless: And how can the Best Ever listeners get in touch with you?

Rosario Terraciano: Cell phone – I try to be as available as possible, except on the weekends. 708 369 3151. Or check out Clickinvest.com, and then my information is on there as well.

Joe Fairless: Rosario, a lot of life lessons, a lot of real estate lessons that are applicable – I’m gonna speak personally – for me, just to have things reinforced, as well as just hearing the things you’ve learned and how you’ve evolved the business too with Clickinvest.

Clickinvest sounds like a beautiful business model for you and for investors number one… And then from bringing investing partners into it, your approach is now if you do, make sure they’re accredited, so they are at the financial level of being able to have their investment dollars at risk. You’ve talked about the downside of what happens when a deal goes the opposite direction and you’ve got family and friends investing, and then also margins.

We can be recognized by New York Times or Wall-Street Journal, but it doesn’t mean that the business is optimized for long-term growth from a profit and loss standpoint… So really taking a look at our return on time.

Congrats on Clickinvest and what you’re doing there, and looking forward to staying in touch. I hope you have a best ever day, and we’ll talk to you soon.

Rosario Terraciano: Thanks a lot, man. I appreciate the opportunity.

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