Josephine Heron, Founder of Waypoints Equity, joins us to discuss transitioning from a military and professional background to full time Real Estate investing, how she built her business, markets & asset classes, and much more.
Connect with Josephine at https://waypointsequity.com/.
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Transcript
Devin Elder:
Hello, Josi, welcome. How are you?
Josi Heron:
I’m good, Devin, thank you so much for having me.
Devin Elder:
Yeah. Thanks for jumping on. I really appreciate it. And I’m excited to dive in to your journey in how you’ve come to real estate investing and what you’re up to today. So of course, we’ll unpack all of that, but just to get started by way of introduction here. How about a little bit about your background, where you grew up and professional career and so forth?
Josi Heron:
Sure. So it’s a little bit of a loaded question. My father was in the army, so I have a lot of worldly experience. My family originally came from Michigan. My dad joined the army to get off the farm. I was born in Germany and anyways ended up in Colorado. That’s where I am now. And it’s good.
Josi Heron:
My professional background, I actually also went in the service. I went to the Coast Guard Academy, got an engineering degree, kind of launched into that, did it for a little while, ended up getting my business degree and moving on from active duty and did a host of jobs. I worked for a while for a startup. I worked in finance and then most recently, I was a consultant at an engineering firm, Fortune 500 company, that I was a program manager and project manager in the asset management consulting world, which was really a great launching pad for what I’m doing now.
Devin Elder:
Right. Yeah. Finance, asset management, all that stuff plays real well into multifamily investing. I always like to ask people what the introduction to real estate was. Was it Robert Kiyosaki’s book? Was it a conference or a mentor or a lot of us have known people that have become successful through real estate and introduced us? How did that happen for you?
Josi Heron:
Yeah, so it’s funny. I read the Kiyosaki book probably 15 years ago and recently found this notebook. I took all kinds of copious notes and it was impactful, but I did not take any action at that point.
Devin Elder:
You found your notes from the original reading and you had taken a bunch of notes.
Josi Heron:
Yeah. I even drew little charts.
Devin Elder:
Sure. But it planted the seed, right?
Josi Heron:
It did.
Devin Elder:
I’ve had a similar experience. Even if you didn’t take action immediately, it did something for you, right?
Josi Heron:
Oh yeah, yeah. And I always have been very much on a financial independence journey. I was an investor in the stock market and saved like crazy for my professional career. I had owned real estate, at one point I even was a landlord because I had moved around, but never looked at it as a path forward or a venue or a career to get me to that next level until, and this might appeal to some of your passive investors. My husband and I were looking to invest some capital gains and we were starting. You hit a point in your career where you’re making good money. If you’re lucky, you’re making good money. And you’re also getting taxed super heavily.
Josi Heron:
So I was looking for a tax break and I came across a podcast that I’m sure you probably know him. He was at the conference we were just at. Lane Beene from Pilot-Legacy was speaking about some tax benefits of investing in a multifamily deal that he had, but it was in an opportunity zone. And listening to that podcast, it came to me at the right moment because I was looking one, for investment opportunities and tax breaks. But also, when I read his proforma, all of the little math parts of my brain were like, “Oh my God. I completely get this business.” Not comprehensively, but I get the gist of it. And this is a path that I know that I can go down. So we invested with him and a couple others as well.
Devin Elder:
Outstanding. You’re right. It’s not an in insanely complicated business. I mean, I’ve worked in larger companies with pretty complex financial models and things. Multifamily’s relatively straightforward. You’ve got your income and expenses and your debt service and your net operating income. So if you’ve got some financial background, it’s relatively easy to pick that stuff apart so it made sense for you.
Devin Elder:
Those initial limited partner or passive investments, was that pretty scary for you to jump into? Or did you feel like you had enough of an education? Or was it like, “Hey, we’re going to leap in and try this out and hopefully get a nice K-1 paper loss”?
Josi Heron:
Yeah, it was a huge learning experience and it helped that we met the sponsor and we had a common background with the military and really had some immediate trust there. But the learning, aside from looking at proforma, I’m thinking, “Oh, I got this.” I remember getting the first PPM and just being overwhelmed. This document is hundreds of pages.
Devin Elder:
It’s crazy.
Josi Heron:
Yeah. It’s all legal and I think this is a good thing. It seems like a good thing, but there’s also a little bit of faith. We did a lot of homework and education. I mean, that really launched me into what became a full-time career in multifamily.
Devin Elder:
Right, right. The PPM’s very intimidating. That’s a private placement memorandum. Yeah, it’s about a hundred pages. What I tell people that are new to looking at that is it’s about 99.9% boiler plate. The attorneys, God bless them, you need a good one on your team or a team of attorneys, but the details of the PPM on a multifamily investment are very small. The address, the number of shares, the splits between the general partner and limited partner. Operating agreement will spell out specific things.
Devin Elder:
But the PPM is really like one giant boiler plate document. And it’s meant to be scary, right? It’s all the things that can go wrong in the investment. It’s like you have your offering memorandum with the pretty pictures and all the things that the sponsor think’s going to go well, but then you’ve got to have the PPM, which is meant to scare you away and if you’re still onboard after reading that, then maybe you should be in the deal. Right?
Josi Heron:
Yeah. Yeah, exactly. And the more that I … It was really eye-opening though, because I was on that track. You work hard, you have a career, a W2 income, you invest a certain way in the stocks and markets. And what it did for me was open my mind that there is another way that so many people are investing in this world. And the benefits were really eye-opening. For me, originally, it was tax benefits, but then you get the cash flow, the appreciation, the equity buy down and the depreciation, which is really the other tax benefit. And it was really, for me, it was an epiphany. It was first of many epiphanies that got me moving.
Devin Elder:
Oh my gosh, it is. There’s this whole other world. I think we’re going through this change right now. You and I are speaking in the latter part of 2021 but really, in a relatively recent time period, have we had all of this crowdfunding open up where you’re seeing more and more regular individuals investing in a syndication, whereas for decades past, you did have to know somebody. It was wealthy families that would pull together to do these things or other wealthy individuals. And it was very word of mouth, but now we’ve got the formation of a lot more capital through syndications, which is really exciting.
Devin Elder:
And then there’s education platforms like this podcast, like your company educating people about how to get into this. I heard an attorney at a conference say that there’s more capital in private placements than there is in the stock market. And I’ll leave that to her, whether that’s, fact check her don’t fact, check me on that. But that statistic, if true, really blew my mind that there is so much capital being formed for these types of projects for the obvious benefits that you just mentioned.
Josi Heron:
Yeah. Yeah, it is pretty amazing. And it’s also really, I don’t know, I found it to be such a win-win industry. So you have someone finding the deal and running the deal. You have investors who are interested in that type of investment and it’s a team sport. Maybe not a sport, but I kind of reckon it to that because as a group…
Devin Elder:
Absolutely.
Josi Heron:
… you can do so much more than you can as an individual. And that’s pretty eye opening as well.
Devin Elder:
100%. I mean, there are benefits to buying a $20 million building that don’t exist buying a $200,000 house. But the wherewithal to go buy a $20 million building, as an individual you got to be pretty financially sophisticated. But we pull enough of us together and like we did in the old days, enough people get together with some spears and we can kill a lion. Whereas none of us on our own is killing that lion, but if we team up and work together, we can kill a lion, which is pretty cool.
Josi Heron:
Or raise a barn after you kill a lion.
Devin Elder:
Go raise a barn. That’s probably a better example. That’s probably a better example. So it’s the team approach, which is good. So you got into a deal, a relationship with a sponsor, which is absolutely critical. I mean, you have to trust the sponsor and you have to build that relationship. And even from a legal perspective, depending on the type of deal you’re getting into, you may have to have a preexisting relationship so that’s important. You got into the deal and then what was your experience after you did your due diligence and then you wire your money out and that’s kind of a big moment there. What was your experience after that?
Josi Heron:
Yeah. No, it was pretty smooth. The team was really responsive and they send regular updates and it’s like investing a little bit in any kind of stock. You know your money is there, you know it’s secure. At the end of the year, we got, like you said, a K-1. It showed our investment, it showed our losses, which are paper losses, which are tax benefit and yeah, it was smooth sailing. We went on from there. We invested in a couple others as limited partners with similar experiences doing our homework, learning as we went. And then I, at that point, was in a place in my life, in my career that I was ready to transition. And I can dive into that as well, if you would like.
Devin Elder:
Yeah, absolutely. That’s kind of where I was wanting to go with this is it’s one thing to be a limited partner, and it’s a great thing. I love being a limited partner because I know the work that the sponsor’s doing on the deal because we do it too. We run our own deals. But I’m a limited partner in a lot of deals and I see those updates come out and I just go, “Oh, there’s so much work that those guys and gals are doing that I don’t have to do.” I love that piece of it. Conversely, I love being an operator too. We get big equity in the deal and we run the deal and so on and so forth, but both parts are nice. Most people will stay on that limited partner or passive track. Just if you look at 100 investors, most of them are going to be on that passive track, but making the decision to go more active can be a huge. It’s definitely a different approach. How did you come to that approach and make that decision? What drove that?
Josi Heron:
Oh my gosh. So like I said, I had a couple epiphanies. One, I was on the executive track at my company and it was all there for my taking and it was an amazing company. I had built a team, I had hired people. We were just doing great things, but I personally was super burnt out. And I also felt, like my whole career, I was either working for a corporation, a startup, the military, always working really hard for somebody else. And I just had a couple of those life moments where I realized like, one, time is not guaranteed. I lost a couple folks that were really close to me very suddenly and it just makes everything stop. And so with those experiences, with the burnout, I really was looking for another way. And at the same time, I was learning about multifamily and real estate investing.
Josi Heron:
So I’ll fast forward. I went through a course, it was focused on investing for military investors. So I was kind of using that network, but not at the multifamily level, but I went in knowing that I wanted to take it and create a business, which I did and have it become my next career, which was a huge jump. It was a huge leap of faith because I jumped off the rails. And I did that through education and then found essentially a colleague through a network who became a bit of a mentor who became my business partner and narrowed down my market.
Josi Heron:
I live in Denver but I invest right now in Kansas city. And about the same time I was leaving my job, I was getting into my first syndication. So I left early. I didn’t have all the passive income or all the income from a general partnership that was a complete safe landing pad. But over the course of a year and a half, I’ve built my business to a place that has been amazing. I had these goals and I blew them out of the water. It’s been super cool.
Devin Elder:
I love it. I love hearing that. It is a leap of faith. Ideally, we have our passive income built up to cover our bills before we exit a cushy corporate job. That was my target. And I just did that. It took me a few years.
Josi Heron:
Congrats.
Devin Elder:
And I just met my bills and then I jumped, still a jump. And that was, gosh, that was almost seven years ago now so it’s been a while. But even that was a huge leap of faith because you’re leaving behind this. Like you said, you had it all laid out before you, right?
Josi Heron:
Right.
Devin Elder:
I mean, in terms of corporate careers, you had everything that one could ask for.
Josi Heron:
Yeah. Yeah, absolutely. And it even took me from leaving my job to coming out publicly that I have had started business, it took me probably six or seven months before I started projecting that. My company’s Waypoints Equity and I wanted to get … There’s all kinds of pride tied up in there. I wanted to get the branding right. I wanted to get the messages right. I wanted to get my presence out at the right time, in the right way from a business standpoint so that all those people who knew me in my other role didn’t think I had made a wrong turn.
Josi Heron:
I didn’t want them to think I was crazy for leaving my job. And I’m mostly speaking about LinkedIn and my website, because I came from a very rigid kind of path. I was in the military. I was a leader. I was an engineer. I was in finance. Those are all very structured and to jump ship a little bit, it was a risk. It feels amazing. It’s the best thing I’ve ever done, but it took me a little while to get there.
Devin Elder:
No doubt. That’s such a great story. Thank you for sharing that. I think it’s important for people to hear that. It’s such an identity shift and I think if you have your identity wrapped up in your job, which most of us do or did, when you think about the amount of hours you spend in a corporate job, 40, 50, or more hours a week, that’s most of your waking hours. You can’t help but have your identity become wrapped up in that, especially if you’re doing it over years or decades. It’s very difficult to shift that identity. I remember I went through a similar thing.
Devin Elder:
What helped you with that shift in the identity and identifying as a business owner now being okay to put yourself out there and your brand out there? Was it just kind of a slow process? Was there a peer group that you’re plugged into? What helped you with that transition? Because that’s a big one. That’s a big deal.
Josi Heron:
Yeah. Well, the courage to do it came from those life experiences where I realized you get one shot at this and if it’s not working, then it’s time to make a change. The boost that I got was through a couple different networks. I mentioned the Military Investor Network, I’m still super plugged in. I’ve done some deals with those guys. It’s been phenomenal and so supportive. I’m in a mastermind with them. I hired a marketing and branding company that helped me just get started, the basics, the logo, the message, the talking points. And then I did join a group for multifamily operators and that has been amazing. There’s a mastermind there and they took me to that next level. That’s Goodegg with Annie and Julie and they’ve been phenomenal. And just that network as well, they’ve become my community, really.
Devin Elder:
Right. That’s great to hear. I think if you’re going to try to replace an existing identity framework and community of a W2 job, which maybe you didn’t choose that peer group, because you didn’t really get to choose who you worked with necessarily, but I don’t think you can just leave that and live in a vacuum. And it’s tempting, I think, for people to do that because there’s podcasts and books and they can research. But I think as humans, we have to be plugged into a peer group, good or bad. And so that’s great to hear that you proactively plugged into a couple of different peer groups that reinforce that identity where you’ve got … I mean, sometimes those things are part counseling too, or talking about whatever challenges you’re going through.
Devin Elder:
I’m a huge advocate. I mean, I’m in several different masterminds and mentorship groups. And I really attribute that to a lot of the success that my companies have had is being in the room with a guy that’s got 10 times the stuff going on that we do and being influenced by it. You cannot help but be influenced by that, right?
Josi Heron:
Yeah, definitely. And it helps show you a path as well. A path of where to go or where you could go and also just having that sounding board. Like you said, I’ve run into a couple hurdles, how do I get through this? That’s super helpful. And I actually started two groups. They’re a little more tight knit, I would say, but that has been great because there’s other people out there like me trying to figure it out, trying to make it to the next thing. And it’s really cool when those groups that I started, they’re kind of autonomous at this point. They don’t need me. There’s people within those groups who are doing deals together now and taking it from there.
Devin Elder:
That’s really exciting. And you talked about this team approach. These deals are big enough that it really facilitates that. I mean, a lot of times, it takes a team to do a deal because your net worth and liquidity and experience requirements are pretty darn high for doing these multimillion dollar deals. So a lot of times it is a team approach. It’s bigger equity. It’s not like flipping a house where you’re splitting, hopefully, $20,000 of profit at the end. It’s not terribly exciting, but big multifamily deals, a lot of equity, lends itself very well to a team approach. And I love doing that. You said it earlier, everybody wins and these deals are big enough to facilitate that. Tell me a little bit about your lifestyle now as an entrepreneur or business owner versus the W2 life that you lived previously.
Josi Heron:
Yeah. I think that’s probably summed up best by my mom who lives close. She basically said, “Josi’s just as busy but she’s happy now.” And I think-
Devin Elder:
Okay, I like that.
Josi Heron:
Yep. I need the challenge. I need to be busy but yeah, just having the choice over my time and my schedule, and I’ve gotten some good mentoring and mindset advice on that because I don’t want to be owned by my job but I love what I do. And so I just have a lot more freedom. I’ve got three daughters and I can now be a bigger part of their life than I ever was, which is crazy to say, but I was always just so distracted or on somebody else’s clock, really. And at this point, I do what I want. I mean, I work full weeks. I think I’d go crazy if I didn’t, but I also can take time to take a day off here and there. I’m at that point now, because the first year of my business, and I’m just kind of over that hurdle, I was just sprinting the whole time. And now we’ve got …
Devin Elder:
You have to.
Josi Heron:
Yeah, yeah, you have to. But it really was over the summer, I realized like, okay, I can stop, look strategically around and then refocus. And at that point as well, I can reclaim some of my time and I can see it from here getting better and better, for sure.
Devin Elder:
100%. It’s a very different approach having this exponential growth path versus a linear growth path that maybe is the case in a W2 situation. The exponential growth path sounds exciting and it is, but also that first part of an exponential growth path is like flat, nothing’s going on and you’re working your tail off. And I think that’s probably the piece that a lot of folks are not willing to go through, right?
Josi Heron:
Right. Yeah. It is the where the rubber meets the road and you’ve got to run.
Devin Elder:
You’ve got to run. There’s no other way to do it. Yep. Especially in the beginning, the momentum is really hard to build, but once it’s built, it’s really hard to stop, too. So it’s just a mindset shift. And I think back to your being in different groups and different masterminds, I’d venture to guess that those guys and gals in those groups think like that and are willing to do what it takes to build a momentum on the front end, so that it’s hard to stop later on.
Josi Heron:
Yeah. Yeah, absolutely. And yeah, I don’t know. We’ve had great momentum and I actually had investors tell me, you guys, one, come across as so professional. This is me and my partners. And two, just the momentum is really obvious and they want to be part of that and part of where we’re going, which is pretty cool.
Devin Elder:
That’s exciting. Well, let’s talk about markets and deals. What have you guys been up to the last few months? What type of deals are you doing? What markets are you guys doing, that kind of thing?
Josi Heron:
Yeah. So my main investing team, I’ve got three partners and we have been focusing, almost doubling down on one market. And that was not the intention but what happened is we got in there and started doing deals and started creating some amazing relationships and more and more deals kept coming to us directly because we were known as a group that can close and get the job done. And we’re also not scared of value add. So we alternate between value add deals and stabilized deals. And it’s a good balance, I think. But we’ve also found this sweet spot. A lot of multifamily operators say they want to find multifamily deals that are 100 units or greater, and we’ve looked at those, but we really are finding our stride in the 40 to 80 unit range. And that works super well for us because one of our partners is the owner of the property management company.
Devin Elder:
Love it. Huge, huge advantage.
Josi Heron:
It’s awesome. So yeah, in Kansas city, we’re now close to 400 units just this last year. And then we’re looking to probably double that and start looking at bigger deals. I think we’re going to aim to do one big deal, but this next year, originally, it was let’s just go for the 200 units. And I think we have realized, like once we found a niche that’s working, we’re going to just let it ride. We are considering other markets as well in the future. So for now this is working, but literally, my business partner just texted me. He’s like he’s there. He said, “325 units, what do you think?” So you never know.
Devin Elder:
That’s a big one. You never know and it’s important to have criteria. When you’re going out, looking at deals, somebody’s talking to brokers, you can’t just say that you’re a multifamily investor because it’s way too wide, way too broad. You got to narrow down markets, asset, class size, age. And I’ve got 25 things I’d like to check all the boxes on, but I also can’t just go out and pick a deal off a tree as much as we’d all like to. So it’s important to have criteria, but it’s important to have flexibility as well because it’s very competitive. I’m sure it’s competitive where you guys are looking. It’s competitive where we are. You’ve got to be opportunistic and strike when a deal presents itself. And sometimes that’s outside the box. If your box is 100 plus units, that’s great for a variety of reasons. But also, if you’re finding success with something and you’ve got the ability to replicate it, absolutely. Especially if you’ve got some, what I would call, an unfair advantage with a property management company that’s on the team. I mean that’s the real work of these projects and you can’t just throw that to any old property management company and hope for the best. I mean, there’s so much work that those guys do.
Josi Heron:
Yeah. No, absolutely. I think that is sometimes overlooked.
Devin Elder:
100% agree.
Josi Heron:
I think there’s a huge hype over the excitement of acquisition and putting deals together and getting in as investors. And small tangent there, I do think that often people would get in maybe a little bit too quickly because partnering on a deal, there’s so many really big factors there. One, you have to really know and trust your partners. And you have to do right by your investors, but you also have to make sure you really have the right deal. So I think that there’s, I don’t know, there’s a lot to unpack there, for sure.
Devin Elder:
There is. I agree there because you can structure a partnership relatively easy and it makes it maybe more attainable to go out and close a big deal. You get into this situation where just because you can, it doesn’t necessarily mean you should. You can put together a partnership, put together the pieces, go out and take down a big deal. Just because you can do that doesn’t necessarily mean you should in a lot of cases. So that education, that network, that path of growth is really important to make sure you’re getting in the right deals, for sure.
Josi Heron:
Absolutely. And that you have thought through the actual execution of the business plan.
Devin Elder:
That’s right.
Josi Heron:
Do you have the right pieces in place between property management? Do you have an asset manager who really knows how to drive performance metrics and construction? In our world, we’ve got three properties now that we’re completely renovating and construction is a huge factor. And it’s also a really tricky time to work with GCs and contractors and …
Devin Elder:
Absolutely.
Josi Heron:
… the material and the labor and the COVID delays and everything else, it’s big.
Devin Elder:
It’s big. There’s a lot going on, especially that first year. I mean, there is a whole lot going on. It’s interesting I almost cringe a little bit with the we closed celebrations, ours included. We post it on social media, whatever. We closed this big deal and it’s like, well …
Josi Heron:
Celebrate the wins.
Devin Elder:
Congratulations. You’re at the starting line and the gun’s about to go off and you got a three, four-year marathon in front of you, basically, right?
Josi Heron:
Yeah. Yeah, absolutely. That’s a good way to put it.
Devin Elder:
Yeah. So, but we obviously love these deals. We love multifamily for all the reasons we’ve been talking about. If somebody wants to connect, Josi, with you and learn more about Waypoints, what you’re doing, what you guys have done, what’s a good avenue for them to do that?
Josi Heron:
Yeah, probably best is to visit my website. It’s waypoints, with an S, waypointsequity.com. And on that website, you can connect directly with me and jump on my calendar. I have a lot of conversations with people who either hear me on a podcast or found the website who are in many different places, but I would say, yeah, waypointsequity.com. I’m also on LinkedIn. I’ve got the LinkedIn page with Waypoints, but you can look me up as Josephine Heron, Heron like the bird, H-E-R-O-N. And I’m pretty active on LinkedIn as well.
Devin Elder:
Outstanding. Well, we’ll link to the main website in the show notes of this podcast. So if you’re listening, you can just go to the description, not while you’re driving, and click the link and go and visit the website. You’ve done a great job with the branding and the presence there. And congratulations on leaving your corporate world behind. That’s a huge step. That was one of the most terrifying things I’ve done as an adult. And congratulations on making it to the other side of that. Not everybody does that. That’s huge and deserves some recognition there. So wish you continued success. I appreciate you catching us up here on everything that’s been going on and I’m sure we’ll cross paths soon.
Josi Heron:
Devin, thank you so much. This has really been a pleasure. I look forward to keeping track of everything you guys have going on as well.
Devin Elder:
Outstanding. All right. Well have a great one. Thanks so much, Josi.
Josi Heron:
Yep. Thanks.