When Josi Heron acquired her first value-add apartment complex, there were many unexpected difficulties that arose, mainly surrounding the tenants. Navigating these issues was no easy process, and in this episode, Josi shares how she turned around the culture within the property. She also discusses how she finds her deals, what systems she uses to run her analytics, and how she plans to scale her business.
Josi Heron | Real Estate Background
- CEO of Waypoints Equity, a real estate investment firm specializing in multifamily properties with a focus on Class B and C properties.
- Portfolio: GP of 350+ units primarily in the Midwest.
- Based in: Louisville, Colorado
- Say hi to them at: WaypointsEquity.com | email@example.com | LinkedIn: Josie Heron, Waypoints Equity | Facebook | Instagram | YouTube
- Best Ever Book: The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications by Brian Burke
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Ash Patel: Hello Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Josi Heron. Josi is joining us from Louisville, Colorado. She is the CEO of Waypoints Equity, which specializes in Class B and C multifamily. Josi’s portfolio consists of 350 units as a GP. Josi, thank you for joining us and how are you today?
Josi Heron: I’m wonderful, Ash. Thank you so much. This is truly an honor.
Ash Patel: It’s our pleasure. Josi, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?
Josi Heron: Yes, of course. My background is fairly varied. I started in the military, and have experience in engineering as well as finance. Most recently, I’ve found myself having climbed the corporate ladder as an Asset Management Consultant leading a program for large infrastructure projects with a Fortune 500 company. I had a couple major epiphanies, where I realized that there was a better application of my skill set and my experience, and found multifamily investing. To sum it up really quick, I left my corporate job, used that as a transition, and went all-in with multifamily investing. Now I am, like you mentioned, a GP in 350 units, and continuing to grow. Our sweet spot really is multifamily value-add deals that range from 40 to 100 units. I’ve found a lot of success there, so we’re going to continue to focus on current markets and then expand outside of our Midwest focus.
Ash Patel: Where in the Midwest?
Josi Heron: Kansas City. Kansas City is where we are.
Ash Patel: Okay. Josi, you said you’ve found multifamily. How did you find it?
Josi Heron: Yeah, so I was looking for alternate investments outside of the stock market, and I’m a huge saver and huge investor on that front. But we’re looking for alternate investments and tax savings. So through a couple of podcasts, some networks that we’re in, we heard of this – essentially, a pitch for syndication that had tax benefits through the opportunity zones. As I was looking through that pitch – and it was by a former military member, so there were some know, like, and trust factors there – light bulbs went off. I realized what they were doing was so much in line with what I’ve done in the past, and also was something that I wanted to learn how to do.
Ash Patel: Prior to that, talking about the tax perspective, you had your W2 job for a lot of years. Did you ever think there was a way to diminish your taxable obligations?
Josi Heron: No. I thought I had it all figured out, and that was work hard, grow, climb the ladder, save, max out 401Ks, IRAs, and that’s it. So yeah, a huge light bulb and epiphany as of the last couple of years, for sure.
Ash Patel: What was your first deal?
Josi Heron: I bought a deal myself, it was 24 units. I have learned so much from that experience. It’s a bit of a leap of faith. I had a couple of single-family rentals prior to that, I had a short-term rental, but I knew I wanted to go bigger. In my mind, at that point, bigger was five to nine units. But I met a meta broker, I told them “This is my criteria, I want to go bigger, five to nine units.” They’re like, “Okay, we’ll start looking,” and they were sending me deals. I went to a conference that really expanded my mindset, so I called her back and said, “Hey, I want more units and more value-add. I know that with my project management background I can handle running a construction budget.” She’s like, “No way. Well, I have this property that I’m trying to get the sellers to list” and ended up going under contract on that property.
Ash Patel: Josi, what was it about that conference that changed your mindset?
Josi Heron: Oh, my gosh, this industry is so incredible, to begin with, because – for the most part, it is a win-win industry. Everybody sees that one, there are benefits in partnership, that was my next step, but it was just being inspired; it was the mindset. There’s a lot of mindsets in this world, in this network, and not holding myself back. So when I ran the numbers and realize I could go up higher and I could get more units at less price per unit, it’s just a matter of really getting the gumption to do it.
Ash Patel: When the broker and you spoke, what was the number of units that you purchased?
Josi Heron: I ended up buying the 24-unit property, but she was looking for five to nine units for me. [laughs]
Ash Patel: That one you purchased all by yourself?
Josi Heron: Yes.
Ash Patel: Were you working full time at the time?
Josi Heron: I had transitioned to part-time, and then got one under contract. I kind of reduced my hours, because I was already building my business plan. I went under contract on this deal, ended up leaving my full-time job, and then two weeks later closed on this property. So it was a little premature. I know everybody’s trying to make this cushion of passive income… But I knew also when I focused and I’m all-in on something, that I’m going to have the most success. I think that really attributed to a lot of my success.
Ash Patel: Was this a Class B or C property?
Josi Heron: It was Class C.
Ash Patel: Alright, you’re smiling. Tell me how bad it was. [laughs]
Josi Heron: 1960s era, just not maintained at all, 50% occupancy, significant deferred maintenance. It was over the last year and a half, I renovated everything, I’ve redone the systems, I had to move everybody out… So it was a huge deal for a first deal; it was huge.
Ash Patel: You moved everybody out?
Josi Heron: Yeah.
Ash Patel: Were they just not paying?
Josi Heron: No, I needed to change the culture in the property. It had some bad tenants and bad actors. I wanted to increase rents, and just bring the whole property up. It’s in a good area, it was really the poorly-run property with the shady characters in the area. I knew it had potential, it’s just — it’s just hard.
Ash Patel: This reminds me the movie New Jack City. Do you remember that from the ’80s?
Josi Heron: Yeah. [laughs]
Ash Patel: Was it that bad?
Josi Heron: Yeah. [laughter]
Ash Patel: How do you get tenants out? What do you tell them?
Josi Heron: Well, I did it over time, because I didn’t have enough carry costs built-in just to empty it and renovate. We kind of had a little bit of a prioritization. Those who were not paying rent, those were the first to go, and then those who had the lowest rents. They all were on a month-to-month, so it just was a non-renewal kind of situation. When I inherited it, a lot of them didn’t even know if they had leases; it was just a mess.
Ash Patel: They didn’t care.
Josi Heron: No. They were just there.
Ash Patel: And you don’t live near this property.
Josi Heron: No.
Ash Patel: Your first property – how did you manage everything remotely, especially a huge lift?
Josi Heron: So kind of coming from both a consultant perspective as well as — I’m still in the reserves, so I travel a lot. So I did a lot of trips out there, and I just built a really good team. My contractor is a civil engineer, which was what my undergrad was; and we connected immediately. He’s got an amazing team, amazing crew, amazing work ethic, and was a partner with the property manager as well. So I just set it up like any project – I’d have multiple touchpoints a week, and then I was out there at least once a month for a couple of different days just to oversee things.
Ash Patel: I was a project manager when I had my corporate career as well. This is a different level, because now it’s your own money in your own emotions.
Josi Heron: It’s a big deal, yeah.
Ash Patel: So what were some hair-raising moments? When you’re trying to be systematic and have your Gantt charts, but then it’s like, “Oh, my God, I’m losing money. This tenant is…” What were some of those crazy moments?
Josi Heron: There’s been a number of them; some of the material. We were doing the renovation on one unit, they opened up a wall, and it’s going to be $10,000 worth of water damage that I wasn’t planning. Other were tenant factors. I installed cameras almost right away, and learned how to operate them pretty quickly, because there were two or three different incidents I had to provide footage to cops, because there was some kind of incident right outside my building. So those kinds of things. I feel like I can see the bigger picture, I know the vision; I actually have a rendering of this property and where it’s going, so I know I just need to get through this phase of it. But there were definitely some times I was like, “Just take some deep breaths. We’re going to be fine, but we got to get through this.”
Ash Patel: So you never question whether or not you made a good decision. Did you always have the perspective–
Josi Heron: No.
Ash Patel: Okay, interesting. How do you change the culture of assets like this?
Josi Heron: I think it really comes down to creating a clean and safe environment, that feels welcoming. We focused on exterior, we focused on the interior, we had to move out some folks who just were not ideal tenants, I would say, and then we did some heavy advertising, marketing, and just really screened well. It’s been hard as well, because I want to get good tenants in there, but more than anything, I want it stabilized, so that’s been tricky as well. But really, I think it’s a clean and safe environment.
So we installed some really heavy-duty doors, security fobs on the outside, got the security cameras, improved the lighting outside… Those were like number one, like let’s get these things done. At the same time, all of the activity on that property is very noticeable. Tenants know that there’s a change, the neighborhood knows that there’s a change, and it kind of just went from there. But it definitely is a process.
Ash Patel: Josi, how did you know that you’re going to be able to turn this around and raise rents? Were the surrounding communities much nicer than this one?
Josi Heron: Yeah, they definitely were a step or two up. And I did my comparison shopping at the other properties. I knew if I could raise it up to that level, that it was a winning strategy.
Ash Patel: How long ago was this purchase and what’s the condition of it now?
Josi Heron: Good question. I bought it in October of 2020, so it’s been a year and a half… And we completed all renovations before Christmas, and we are in the final lease-up phase. There’s been a couple of different phases. And it’s good, we’re off to the races.
Ash Patel: With the number of renovations, you have a massive taxable loss, right?
Josi Heron: Yeah. [laughs]
Ash Patel: So it’s got to get easier from here, but you tackled a very tough deal. How did you transition to becoming a GP?
Josi Heron: At the same time and at that same conference, I was networking. I had already chosen my market, which was Kansas City. Obviously, I remember 2020, everything was virtual. So I’m at a virtual conference, there are all these breakout rooms… I met some investors who also are looking at Kansas City, and ended up meeting a gentleman who becomes my future business partner. He had an 80-unit deal under contract, and was looking for investors. At the same time, he had used a lot of the same contacts that I was using; he used the same lender in the past, the same broker… He started kind of mentoring me on this property that I was about to tackle. We developed some good rapport, and then I jumped onto his deal as an investor. Eventually, because of my super-strong interest in tax and legal, he brought me in as a general partner there to run all of the cost segregation studies and the tax portion of that syndication. From there, it grew.
As we were closing on the 80-unit property, we had another property that had just become available, I would say. A third partner in that deal was the actual property manager. He had another deal that had just come off-market to him, and they gave it to me to run and lead that deal, because of this 80-unit deal we had just closed, there was a ramp-up there. This 44-unit deal came to us, so I led the acquisition on that. And then we just had momentum.
Ash Patel: How much money did you raise for each of those projects?
Josi Heron: Oh, gosh… Our average deal is about 1.5 to two million raised.
Ash Patel: And why Kansas City?
Josi Heron: I looked at rent to price ratios, I looked at population growth, and job growth across the country. I did this analysis in April or May of 2020, so COVID had hit and things were crazy. Kansas City was not top of my market analysis, there were some other markets that were. But during a COVID environment, it was closer to the top. And I live in Colorado, so I could drive there; that really is why I started focusing on Kansas City. I did drive several times, which was fine. I fly now when I go, but that was why. Once I started networking and finding all those great resources there, it kind of has grown and solidified. We get off-market deals now where I hear so many other syndicators are putting a hundred LOIs out to get a good deal.
Ash Patel: How are you getting the off-market deals? Is it from brokers?
Josi Heron: Yeah, relationships. They know that we can close and they know that we can handle heavy value-add.
Ash Patel: How long has your partner been in this space?
Josi Heron: He probably was there three or four years ahead of me.
Ash Patel: Okay. What are your roles today?
Josi Heron: As I said, for the first couple of deals, we switched back and forth with acquisitions. I would say now he is definitely acquisitions lead. I am more on the asset management as well as the capital raising. I’ve got the platform, I’ve got the blogs and the outreach. They’ve got two other partners now as well. They kind of fit in with property management and capital raising as well.
Ash Patel: And Josi, What’s your bottleneck today? Is it deals? Is it investors?
Josi Heron: Neither. I think deals we’re good and on investors we’re good. It’s creating the systems to scale. We have great momentum, got to 350, we’re now managing and operating all of those… We have good systems and we’re trying to make them better, so that we can take those more strategic moves going forward.
Ash Patel: What were some of your biggest growing pains?
Josi Heron: As partners, I would say, when something goes a little bit awry from your well laid out business plan and your well laid out proforma, it’s working through that set. How do you problem solve and get to a solution in a partnership that is going to meet the mark for the investors? One of our properties had a water issue where we had, out of nowhere, some really high water bills. And for two months, we weren’t able to distribute to investors. That caused a lot of pressure and stress on the partnership. It was eye-opening in terms of how are we going to operate through thick and thin? One of the bigger challenges; we need to come together and make the right decisions to get this property on course, but then two, who’s leading, who’s taking this role, how are we all supporting each other as we go through?
Ash Patel: And what was the reaction from investors?
Josi Heron: We over-communicate, especially in a situation like this, and I think there was understanding. There also was a need to know what is the plan and what is next. We just would communicate on a regular basis, what we are doing, what actions we are taking, what we are finding, what we thought the next couple of months would look like. We always had the CRM, and the [unintelligible [00:21:13].15] list, and the emails, so we were making phone calls and just making sure that everybody understood what was going on and what it meant.
Ash Patel: How was the communication done? Was it through phone or email?
Josi Heron: Both. I would say the phone was most effective. I had several conversations where you talk through it. You say this is what happened, this is what we’re doing, how we’re solving it, and this is what you should expect moving forward. The investors understood; it is real estate, things do happen.
Ash Patel: What’s on the horizon for you? What’s next?
Josi Heron: We’re going to continue to operate in Kansas City. As I said, our business model there is working really well. But we want to take that model and move it to another market or two. I’m refreshing my market analysis, we’ve got a couple of markets that we’re targeting, and we’re developing relationships, and going to start hitting the road here shortly to go and really fine-tune that strategy. But the goal is to syndicate — three syndications a year I think would be good. We did four last year, so I think three and then potentially larger deals as well.
Ash Patel: Josi, in your analytics and systems background; what did you find were some pain points with implementing systems? What are some of the things that did not work out as expected?
Josi Heron: One thing I think is — in my corporate world, like you said, with my background, I’m used to being the lead or in charge of a team, and you kind of set things one way and it happens. In a partnership, that’s not necessarily the case; you have to meet each other at the same level. So I would implement systems – we use Asana, and I’m very much up to speed with that. But bringing everyone into the fold, I think, is one of the challenges. It’s not a concern, it’s just getting everybody on the same page and moving in the right direction.
Ash Patel: Well, how do you do that? If you have somebody that’s not a systems guy or gal and just somebody that flies by the seat of their pants, how do you bring that person into your world and systemize them, so to speak?
Josi Heron: Good question. Communication. We’ve got regular calls twice a week as partners, and then we’ve got calls with our property managers. You put it up, you go through the list and you say this is what we’re tracking, how’s this is going, and just create more of a structured approach there. Also, on a platform where everybody has access, we can all see as a team, and we can communicate as a team what’s the status.
Ash Patel: Josi, what is your best real estate investing advice ever?
Josi Heron: I would say find a mentor and educate yourself, but don’t do that to the point of inaction. Find something that is a little bit outside of your reach and go for it, and focus. I would say when I finally cut all the distractions and truly focused on becoming a syndicator, it changed everything.
Ash Patel: Do you have a mentor now?
Josi Heron: I do. Yes.
Ash Patel: How did you find him or her?
Josi Heron: I did a lot of homework. I did a lot of homework and a lot of asking folks within this multifamily network.
Ash Patel: Some of the younger people that want a mentor, what advice would you give them on how to approach that individual?
Josi Heron: It is always, as you know, about adding value. I’ve been approached to sponsor deals or to mentor and I’m always open to that. I think other syndicators are, as long as it makes sense from my standpoint. There is risk there; so if you can come and add value immediately – and that could be with hustle, maybe you have an IT background and you can help fix my CRM… Anything like that is super helpful. The exchange would be, “Let me show you how to work on some of these deals.”
I have two mentees right now, I would say. I would love to maybe someday get into coaching; I think it’s a little early for that for me. But I’ve got two different masterminds that I run, one for women and one for military investors. That’s more of a sounding board, but from that, I’ve got two mentees that are helping me build my business, and I’m showing them everything I know.
Ash Patel: Josi, are you ready for the Best Ever lightning round?
Josi Heron: I am, Ash.
Ash Patel: Let’s do it. Josi, what’s the Best Ever book you’ve recently read?
Josi Heron: Okay, so I go back to The Hands-Off Investor by Brian Burke quite often. That one is a favorite I’ve got earmarked. It’s geared towards passive investors, but I’ve learned a lot from that as well.
Ash Patel: Josi, what’s the Best Ever way you like to give back?
Josi Heron: Oh, my goodness. I do a lot of donations and charity work with veteran organizations. We actually give 10% of our profits to vet organizations. But I do have to put in a little bit of… I don’t know if it’s a plug. I just spent the last three months on orders as a reservist, and it was helping the Afghanistan refugees. I would say that’s giving back.
Ash Patel: Yeah. 100%.
Josi Heron: That pulled me aside. And one major issue that these refugees are having –we’ve settled now 50,000 in our communities– is they need to find housing. And it’s been a really tricky road for me to walk, trying to help resettle them and also being on the multifamily side, because they don’t have proven income, they don’t have a background check. So I just wanted to give the pitch out there that there are so many refugees and people who are coming from a great background, great skill set, and great work ethic, that may or may not have all of our normal screening kind of criteria. Yeah, I’ve given back the last couple of months by helping these individuals. I think the next step is can our community now help them.
Ash Patel: Incredible. Josi, how can the Best Ever listeners reach out to you?
Josi Heron: My company is Waypoints Equity, and the waypoints speak to those different pivotal decision points we all have in our life. I would say go to my website at waypointsequity.com, or you can reach me through my email, firstname.lastname@example.org.
Ash Patel: Josi, thank you so much for sharing your time with us today. Your story with your military background, in the corporate world, asset management, getting into real estate, and then going big with that change in mindset… And thank you for your military service and your sacrifices as well.
Josi Heron: Thank you, Ash.
Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review and share this podcast with someone who you think will benefit from it. Please also follow and subscribe. Have a Best Ever day.
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