Joe McCabe is the Founder and CEO of The Surefire Group, a Philadelphia-based company specializing in a suite of high-standard real estate and healthcare services. The company has interests in multiple real estate brokerages, mortgage companies, insurance companies, and over 80 real assets. In this episode, Joe discusses how he learned to properly finance his investments, his journey to acquire homecare business properties across the country, and his plan to convert a large portfolio of Section 8 housing to IDD (intellectual and development disabilities) homes in Philadelphia.
Joe McCabe | Real Estate Background
- Founder and CEO of The Surefire Group
- Portfolio:
- Over $25 million with 80 assets
- Based in: Philadelphia, PA
- Say hi to him at:
- Best Book Ever: Maintain your Gear by Joseph McCabe
- Greatest Lesson: Go for scale. Buy as many units as possible in your first deal, and utilize tools like property management.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Joe McCabe. Joe is joining us from Philadelphia, Pennsylvania. He's the founder and CEO of the Surefire Group, a Philly-based company specializing in a suite of real estate and healthcare services. The company has interest in multiple real estate brokerages, mortgage companies, insurance companies, and over 80 real assets, primarily mixed-use commercial spaces, but also single family homes. And that portfolio is valued at over $25 million. Joe, can you tell us a little bit more about your background, and what you're currently focused on?
Joe McCabe: Yeah, sure. Thanks for having me on. So I started off actually selling real estate in about 2017, right as I was getting out of college, and I had a start date for Philadelphia Police Department at that time; that was the only reason I was in college. And basically, within that six months, I had made 75k, and my family, typical Irish Catholic family was like "Why the hell would you be a cop?" And I was like, "Well, that's what we do. That's what we all do." So I ended up running with real estate, about a year later opening up a RE/MAX franchise. A couple years into that acquiring a few other RE/MAXes, about five now, in the Philadelphia area... And that whole time, two of our biggest focuses to this day have been mortgage and title joint ventures, with either real estate brokers or developers that are doing at least 100 million in volume. So we go out there and partner with these brokers, these developers, some attorneys, in all states, for the most part, and then we'll do their mortgage and title and create a new title company for them, and will share in the profits of that. And then along the way, of course, leveraging the real estate brokerage to find some pretty decent single family deals in the Philadelphia area.
Slocomb Reed: Nice. So real estate brokerages, those RE/MAX franchises that you were talking about - affiliated mortgage companies and title companies... Are the insurance companies wrapped into that as well?
Joe McCabe: Yes, they're title insurance specifically, but we don't have any homeowners insurance yet. That's in the works. But there's no profit per se to be made on the real estate brokerage side. There is a significant scale; big companies out there, with 1000s of agents, that are doing pretty good... But the majority of your standalone, independent offices that are doing a couple hundred million in volume, they're not making any money on the brokerage; they're usually making money on ancillary services. And a lot of times they'll own a title company, usually a subpar service, there's management fees, all types of stuff that we don't charge... And then they'll always have a mortgage desk rental. So the thing we do differently is we create standalone mortgage companies and standalone title companies, separate licenses, separate loan officers, even separate branding, kind of like white labeling if they want it...
But basically - and this is for the top 15 high-premium states in the country - for every 100 million in volume, we're able to add million dollars net profit to the real estate broker's bottom line, which is huge right now, because agents keep wanting more and more commission... Some of these splits are 90%, 100% at this point... But for those splits, they want more services. So it's like, the only way to do that is to then find money elsewhere.
Slocomb Reed: And these are mortgage and title and title insurance companies - you said you have five RE/MAX franchises in the Philadelphia area, but it sounds like you're putting mortgage and title companies inside other brokerages around the country.
Joe McCabe: Yeah, we partner with every brand. We partner with Better Homes and Gardens... A lot of Keller Williams offices, a couple of other RE/MAXes, a lot of independents down in Florida... We actually just partnered with -- he was just on Good Morning America, the largest landowner in Texas, which is pretty cool... Joe actually knows him, too. We're all in our 360 together. So yeah, we'll partner with anybody if it makes sense. It usually makes the most sense on the real estate brokerage side.
Slocomb Reed: Because of the transactional volume of the brokerage.
Joe McCabe: Yeah, the agents normally control that. Not on commercial so much; a lot of that's dictated by the buyer or their attorney. But your standard residential transaction in Pennsylvania - it's a one-time insurance, and people don't really know anyone in the title industry, so they go with the agent's recommendation.
Slocomb Reed: That makes a lot of sense. As a residential real estate agent, I'm not transacting as much anymore; I say that, I just took a couple of listings... But I'm not trying to transact anymore. A lot of buyers want to shop their mortgage, they want to drop the interest rate and the fees, but no one ever thinks to shop title.
Joe McCabe: Well, one of the unique things we're able to do is if you think the traditional Keller Williams model, where the agents have ownership in the title company, and any other ancillary services... If we can go in there and we know that the brokers getting their real estate, they're happy, we're getting mortgage and title, we can almost guarantee that we'll beat the rate. We'll do whatever we need to do on price, because we're making money on three sides of the transaction. So it allows us to actually do right by the consumer, while sharing in the profits with everybody else; and almost guaranteed that they'll pay less, [unintelligible 00:05:51.12] fees.
Slocomb Reed: That makes sense. And with the brokerage, you said that's how you've come across the juicy single family deals that you've taken down yourself. What about the mixed-use commercial spaces?
Joe McCabe: So I've had a lot of success... I really started off with just myself, and just wanting to own a lot of things, and having no idea how to do that... And I definitely didn't have any money. So at an early age - and I don't remember how, but I had gotten it in my head that I could just seller-finance everything. And I've had a lot of success with that. We built a $25 million home care company. So within 18 months, we were able to acquire and build. It's a non-medical homecare, family caregiver type company; we were able to build that in 18 months during COVID. And we just raised a $30 million fund. About 90% of the acquisitions we made were seller-financed at roughly two times EBITDA. So we absolutely stole that. But I learned that in the real estate side, because I was like "If some of these single family portfolios--" I've owned over 150 properties total, and I would come across these portfolios that were free and clear, someone bought them over 40 years, a lot of them at sheriff's sale, and they're looking to unload them... If I found the right seller that was motivated, the properties are free and clear, why couldn't they just deed them over to me, hold the deeds in escrow... They can keep all the rent money - I didn't even want the rent money - and then wait six months and I could refinance out of it. So they never lose a thing. They have deed in lieu of foreclosure, there's zero risk to them. They've already been on market two years... Why not?
So I did that in Pittsburgh for the first time. And there were about 70 properties total, most of which I've sold. But we were actually able to acquire that 100% seller-financed; they actually let us keep the rental income before we had paid them a dime. And upon refinance, they actually paid us our real estate commission, used our title company, we used our mortgage company, because we'll do some commercial brokering as well... So we actually made money on this transaction, and someone basically handed us the keys to 70 properties. And then we refinanced out of that not long after, and then sold it about five years later.
So I've had a lot of success just seller-financing properties through motivated sellers, and looking for stabilized deals, which - there's not a lot of killer deals out there right now, especially in the areas that you want to be in. It's going to be pretty hard, because no one's necessarily having a hard time selling anything. But five, six years ago, you had a better shot at it. So I'm looking forward to hopefully some changing market conditions.
Slocomb Reed: Joe, there are several moving parts here with everything that you're talking about in your background. We haven't really gotten to your current focus yet, at least I don't believe... But let me see if I can put the pieces together so that the listeners and I get a better idea of your story in real estate thus far. You started out right out of college as a real estate agent, made more money selling real estate than you were going to make on the police force... So you continued on with that, got the opportunity to acquire or start a RE/MAX franchise, which you then spun into a handful of RE/MAX franchises in the Philadelphia area... Started to add ancillary businesses to the real estate brokerage, particularly mortgage and a title company for title insurance, and you've scaled that into providing those ancillary services for mortgage brokerages all over the country, as well as for your brokerages there in Philly.
Along the way you have found opportunities to acquire real estate at really sweet deals based on the activity in those brokerages that you have in Philly, and it sounds like there are similar reasons why you came across those properties in Pittsburgh. Am I on track here?
Joe McCabe: Yeah, that's spot on. And for the interesting thing about -- most real estate brokers will partner with a title company or mortgage company; we started our own, because I had never run a business before, and I was like, "Re/Max doesn't work. I need to have title working, mortgage working, RE/MAX working all separately", and just hoping that one of these really took off. I didn't expect all three of them to take off. But I was just putting as much effort in all three as I could. We kind of ended up doing that on accident out of fear, working every angle at once, and just making sure that each company was truly standalone. And then we did a good job and started scaling that out to help other brokers.
Slocomb Reed: That makes a lot of sense. You have mentioned R360 a couple of times now, and before we started the interview. Can you tell us a little bit more about what R360 is?
Joe McCabe: Yeah, so R360 is a family office network. So it's for families with a minimum net worth of 100 million. The average is about 400 million. A lot of them have had major exits from businesses, but I'm the youngest member and partner of R360. I'm 30 now. And then I also am the Chairman of their Rising Leaders Committee, which essentially is all of the kids of these wealthy families, and we try to bring them really cool content, trips, experience-type stuff, very similar to GoBundance, in a way, just a higher net worth type group.
Slocomb Reed: Joe does some syndicating in, of course, Dallas, Fort Worth, and he's from West Texas, but he lives in Ohio. You live in Philly. Why are you members of a Dallas chapter?
Joe McCabe: I actually like to say that I'm a member of every chapter. So we have three chapters in Florida, one in California, two in Texas, and then one in New York City. So technically, I'm part of the New York City Chapter. But I do not miss a single meeting. I go to every single meeting, because the content and the lessons learned, and the stories - it's such high-level stuff. And just as an example, one of the owners of the Reds is in the Dallas chapter. The guy who founded PIMCO. So some like seriously big name, celebrity names, people who own private islands... So just going there, every single meeting, there's some piece of advice, or some life lesson that I can't afford to miss at 30 years old. So I try to get to every single chapter, and they actually say that I've been to more chapter meetings than the founders, which I'll take.
Slocomb Reed: What are the qualifications for being a member?
Joe McCabe: There's a big vetting process, and the minimum net worth is 100 million. But what they're really looking for - there's tons of articles if people google R360 that talk about a couple of billionaires that were actually not admitted to R360. I met one of them; he still comes to dinner with us, but he's not a member. So they're really serious about the character of the people who get in.. Because like a lot of the groups, this is not meant to be a pitch fest; there's only 80 members, a lot of them are at north of 400 million. They don't want to be pitched, they don't need to be pitched. But I think the idea is let's be super-selective, so that eventually, we're going to end up doing deals together at some point, or working together. And to avoid any problems, let's make sure we have people of good character, who have built real companies, and allow them to collaborate.
A lot of what they focus on too is really family-oriented. So it's a lot of trips where all family members can go. We'll go to private islands, we'll plan our trips to the Scottish Highlands, whatever it is... It's a lot of fun. It's a lot of content, and it's really life-changing for me.
Break: [00:13:29.02]
Slocomb Reed: Joe, what is it that you're focused on right now, in 2023?
Joe McCabe: So right now, we just raised that homecare fund, so that's taking up a lot of our time. So we're out there, and we're pretty much raised already for that fund. We've raised about 15 of the 30 million we were looking for, and just acquiring homecare locations all over the country... Preferably in areas we're already in, which is like the Pittsburgh market, Scranton, Philly, Dallas, Houston and Lake Jackson. Those are our biggest markets in Texas. And then title joint ventures - we are on a roll with them right now, because -- title and mortgage joint ventures; real estate brokers are feeling the crunch, man. The volume is down significantly across all of our partners, and I know a lot of people aren't talking about it necessarily from how it's hurting people's pockets, but brokers have their heads up right now, and they're looking for opportunities in title, mortgage and any ancillary service they can.
And then lastly, the final thing I'm doing was a book that I had written for recruiting purposes - because I had to take myself out of the brokerage, because I couldn't be the face of it anymore if I'm going to partner with other brokers. So I had written this book that was supposed to be my story, and it was supposed to help our recruiters and our CEO go out there and recruit... And Simon and Schuster ended up picking it up and publishing it. So I wrote "Maintain your gear", so I've been shamelessly pushing that... And I'll send it if any listeners reach out to me; I prefer they buy it, but I'm happy to send them a copy. My whole goal is just to change a few people's lives with the book. I have no courses, or anything to sell anybody. It's just what's in the book, and maybe it helps somebody, maybe it doesn't.
Slocomb Reed: Joe, this being a commercial real estate investing podcast, I love the opportunity to interview vendors and service providers in real estate, especially commercial real estate; given that I am one, I've been a service provider almost as long as I've been a real estate investor, I do feel compelled to ask though, when it comes to real estate acquisitions, dispositions, your real estate portfolio, what moves are you making currently? What else are you looking to do in 2023?
Joe McCabe: We actually just wrote offers on two significant -- one's under contract already. So we're buying a 90-unit, single family home scattered site portfolio in Philadelphia. The majority of that is Section-8, which is the only reason I'm buying it... Because it's stable; I figure the income's not going anywhere. They're pretty decent, stabilized properties, they're in good condition, the tenants seem decent.
And then I was looking at a portfolio up in Rochester; we're trying to work out the financing on that. Also single family. That was 55 units. So we're really doing that.
As far as commercial property goes, we've been trying to really buy anything that we owner-occupy; because instead of paying rent, I might as well pay a mortgage and own it over time. So we own most of our home healthcare locations, physical locations, we own most of our real estate offices, we own at least one of our title offices, because a lot of them are partnerships... So we're looking to grow that.
I've seen, because I've been asked to invest in some multifamily deals that I couldn't even believe people were investing in, and I'm sure that there's going to be some opportunity to pick those up as those weaknesses are exposed, as the time comes to refi, and they won't be able to, and some other issues... So I'm looking forward to see what we can pick up.
We've had a lot of luck with single family in the past, but the goal is to really start adding on some multifamily, and then to get into a little bit more commercial lending. So we are a correspondent lender, so we lend our own money... But we haven't done so in a big way on commercial, and that's something we're looking to scale up this year, from the lending perspective.
Slocomb Reed: Last question that has to be asked, as our time is running up here, Joe... You said that one of the things that drew you to the 90 unit scatterplot portfolio in Philly was that it is Section-8, and therefore stable. I am a residential owner-operator, apartments, single families etc. in Cincinnati, Ohio, and you would not hear someone say that Section-8 is the reason why they are going after a portfolio in Cincinnati, Ohio. I want to ask why Section-8 attracts you to an opportunity in Philadelphia, but I'd like to attempt an answer first... Because one thing that a lot of people don't understand, particularly people who are coming into real estate from a more limited or passive capital deploying perspective, is that effectively when you're going with Section-8 tenants, or tenants who are receiving housing vouchers to pay or help pay their rent, a typical lease has two parties, the landlord and the tenant; the property manager representing the landlord. When you get involved in Section Eight, there is a third-party, the voucher vendor, basically, contractually engaged with both the landlord and the tenant. So you have three parties and three different contracts involved in that tenant renting from that landlord, and your experience with the vendor that you use is as critical, if not more critical than your engagement with your tenant when it comes to the success of your rental property as an investment vehicle, as a source of income. That's going to be the reason that a lot of people hearing you say you want Section Eight in Philly think that sounds crazy, because where they are the vendor relationship is pretty difficult. Is that not what you're experiencing in Philly?
Joe McCabe: So the reason I say that is the political climate in Philly. I would say that Section Eight is one of the reasons we sold a lot of our properties in Pittsburgh. And I would say this about a lot of blue cities. They're not landlord-friendly, and when someone stops paying the rent, sometimes these tenants have more rights than you, sometimes these squatters have more rights than you, and in Philadelphia it can take up to a year to get a squatter out.
So our plan is not to stay in the Section Eight business, it's actually to convert all of these properties over to IDD homes. So one of the big arms of Home Care and Family caregivers is actually the intellectual disability market. And you can basically staff these with people with disabilities, and have one-on-one staff members, and they're extremely profitable, and it has an opportunity to do some good. So the way we were looking at it was - it's in a tough area of Philadelphia, so we know we're going to have tenant issues. But at least on the section eight side of things, that other 50% that we don't have to kick out, at least we're going to have that income coming in, is kind of how we looked at it, and provide some stability in the interim. Because with traditional tenants, I've had to go to way too many court cases, especially through COVID, and it was impossible. The landlord was not considered at all by some of these judges, and they would just extend, let the tenant stay longer... And a lot of the politicians in Philadelphia, in places like Pittsburgh, they were actually advertising and telling their tenants not to pay any rent.
So in these markets, some of your best payers where the government; the government kept paying regardless. But they definitely have their requirements, and they want the properties up to a certain standard... And that's good and bad. But that same area that we need to be in for the IDD business is kind of the same area where we found these properties. So we almost looked at it like a hedge; we have 50% of that guaranteed to pay us for a certain amount of time - and 'guaranteed' is a loose term - but then the other 50%, we have to kick them out. And they may become squatters, and that may take a year...
Slocomb Reed: So Section Eight is really a hedge with regards to transitioning this portfolio into a different business plan, a different strategy that you already have a focus on.
Joe McCabe: Exactly, yeah.
Slocomb Reed: Gotcha. That makes a lot of sense. Joe, I know you are a returning guest. It's been 1,500 episodes or so since you were last on, but are you ready for the Best Ever lightning round?
Joe McCabe: I'm ready.
Slocomb Reed: Awesome. What is the best ever book you recently read?
Joe McCabe: Man, I always go back to The 10x Rule by Grant Cardone.
Slocomb Reed: What is your best ever way to give back?
Joe McCabe: I'm actually on the board of Ariel Recovery Group, and one of the things that we're doing right now - we run an event called Heal the Heroes, where we actually take these veterans who are kind of troubled, we send them away to a private island, they get some coaching from some really big entrepreneurs, they have a one-year follow-up program, and then we actually help transition them into this -- I was a veteran, I probably forgot to mention that in the beginning... But we try to transition these guys into the civilian world, or into our nonprofit disaster recovery and anti-human trafficking division of Ariel Recovery Group. So that's one of the big efforts there, and I'm really involved in that. I really care about veterans, and obviously, we can use these guys and their skill set to go out there and eliminate human trafficking, and respond to natural disasters, and hopefully place them in the civilian world in a six figure job.
Slocomb Reed: Nice. Joe, as a real estate investor, what is the biggest mistake you've made, and the best ever lesson that results from it?
Joe McCabe: I didn't know Grant Cardone when I bought my first property, and Grant always says, when you do your first deal, buy as many units as possible. I think he used to say 16. Now he says 27. So I always say my first deal was Pittsburgh; my first deal was actually a duplex in Philadelphia, by itself, in a horrible neighborhood. The day I bought it, both tenants stopped paying. I had a hard money loan on this thing. Luckily, I knew the hard money lender, or I could have been foreclosed on, it could have been a nightmare. But literally, I bought it, the tenants sent me their wish list... So I guess you could say protect the downside, but the concept behind people saying "Oh, you should at least do a deal with 20 units or 30 units" - they're saying that because it's just kind of a volume game. It's a numbers game, right? I mean, if you have 30 units, chances are most of them are going to pay, and you're good. You can carry your debt service. And that's really what's important in a bad situation. You're paying the taxes and the debt service and you keep the property and eventually stabilize it over time.
And then the other thing was not using professional management when I had that. It's going to be hard to -- we have that in-house now. At that time we didn't, so we outsourced it... But I think it's important that with the managers - in real estate we'd call it passive, but make sure you manage the managers, and make sure you're watching the portfolio, because it's amazing how quickly a third-party vendor can crash your property if you don't have enough units. So that'd be my piece of advice.
Slocomb Reed: Let's formalize it, last thing here - what is your best ever advice?
Joe McCabe: Go for scale. Go for 20 units plus, and use professional property managers.
Slocomb Reed: Last question, where can people get in touch with you?
Joe McCabe: They can reach out to me at Joe [at] theSurefireGroup.com, and shoot me an email; happy to connect with anybody, or send you guys a copy of my book, or you can buy it on Amazon, like I said. Either way. But happy to send you guys one, and just hope it changes some lives. And also, I'm on Instagram to @josephcmccabe.
Slocomb Reed: Those links are in the show notes. Joe, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five-star review and share this episode with a friend you know we can add value to through our conversations today. Thank you, and have a best ever day.
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