Facing an investment flop can be a crippling experience, but Dr. Johannes Urpelainen quickly learned from this experience and carried on with building his legacy. In this episode, he shares his story, tips, and tricks for getting started in the industry. He emphasized the ins and outs of the hospitality industry and ways to increase cash flow.
Dr. Johannes Urpelainen is a Principal at Oasis Equities. He has a Ph.D. in Political Science (University of Michigan, 2009) and is a tenured Professor of Energy, Resources, and Environment at Johns Hopkins University.
[00:01] – [06:08] From an Investment Flop to Monumental Success
- Johannes’ story from an investment failure to building a real estate empire
- Running multifamily and focusing on hospitality through AirBnB and hotels
- Johannes explains the ins and outs of the hospitality industry
[06:09] – [19:28] What it Takes to Manage in the Hospitality Industry
- The similarities between acquiring hotels and multifamily
- Why the recession is not a concern in the hospitality space
- The role of 3D printing addressing the housing shortage in the U.S.
[19:29] – [20:24] Closing Segment
- Reach out to Johannes
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- See links below
- Final words
Tweetable Quote
“Real estate is kind of a legacy industry, right? We don’t see too many new innovations, roughly the same as 100 years ago. But with 3D printing, that could change because if we can drive down the cost very significantly and build these a lot faster, we could really start making progress on the housing shortage, which is pretty extreme in the United States today.” – Dr. Johannes Urpelainen
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Connect with Dr. Johannes Urpelainen on Linkedin. Check out his website and email him at johannes.urpelainen@gmail.com.
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Want to read the full show notes of the episode? Check it out below:
Johannes Urpelainen [00:00]
Real Estate is kind of a legacy industry, right? We don’t see too many new innovations roughly the same as 100 years ago. But with 3d printing, that could change because if we can drive down the costs very significantly, and build these a lot faster, we could really start making progress on the housing shortage, which is pretty extreme in the United States.
Intro [00:21]
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson [00:33]
Dr. Johannes Urpelainen is a principal at Oasis Equities, a real estate investing company. Johannes, welcome to the show.
Johannes Urpelainen [00:40]
Thanks. Sounds great to be here.
Sam Wilson [00:42]
Absolutely. Johannes, there are three questions I ask every guest who comes to the show in 90 seconds or less. Can you tell me where did you start? Where are you now? And how did you get there?
Johannes Urpelainen [00:50]
I started by making a pretty bad investment here, where I live in Arlington, Virginia, in a condo before I had any idea what I was doing. Learn from that mistake, did very well on the passive investing side during the pandemic, and about a year ago, decided to launch my own investment company called Oasis Equities.
Sam Wilson [01:11]
That’s a really fast 123 step there. Okay, so you owned a condo that was a complete flop, then you started doing passive investing. And that did really well for you. You said you know what? I can do this on my own. What was that? What asset class and what are you working on right now?
Johannes Urpelainen [01:29]
I’ve done some multifamily. So I have a few code GP positions. We have an ID two unit in Atlanta and a 300 unit in Orlando, Florida. But recently, I’ve been very focused on hospitality. So run a few Airbnb s in West Virginia. I am a cold GP on a new construction in North Carolina, for a kind of beach community. And right now I’m working on closing on three hotels, one of us Virginia, two in Arkansas.
Sam Wilson [02:01]
Okay, tell me about I don’t know, I’m thinking here on the show. If I had anybody come on and talk about hotels, if we have it’s been hotel conversion projects, or something a little bit more off the beaten path, but a straight hotel investment we’ve not really talked about lot here on the show. So give us the give us the mechanics of investing in hotels.
Johannes Urpelainen [02:24]
Yeah, so the basic idea is very similar to multifamily. You’re looking to buy something where you can buy at a low basis. And then you can add value with renovations, better management, new revenue streams and all that the challenges that you faced with hotels, it’s seasonality, and the income is more kind of variable. As we saw, for example, during the pandemic. The other issue is that cap rates are higher. So that means that when you add value when you went away, it doesn’t translate into quite the same increase in the value, as you see in multifamily. But the beauty of hospitality is that there’s almost an endless number of things you can do to add value, you can take Highway motel, and turn it into a cool boutique hotel and make a lot of money doing that.
Sam Wilson [03:15]
Very, very cool. So with the options for investing in hotels, you know, seemingly endless options for investing in hotels, how to how have you found an effective way to kind of filter through those and find the investments that are right for you?
Johannes Urpelainen [03:31]
That is a very good question. I’m myself more on the cash flow, side of investing. So I always try to find assets that would do quite well as is. So I don’t go for vacant hotels or very heavy value ads, I’m looking for something that’s kind of working okay, as is maybe has a cap rate of like nine or 10 or something so that I basically pay $10 for $1 of net operating income. And then I do things I improve the marketing. Many of these hotels are owned by kind of mom and pop operators who don’t understand dynamic pricing, who don’t understand how to optimize their websites and all that. So that alone can sometimes give you five to 10% net operating income by just improving the pricing.
Sam Wilson [04:22]
Is there a brand in particular that you hunt for or that you found that to be the right brand to buy inside of I don’t even know necessarily how Hotel Management works is the brand actually just the manager of it like a property manager? How does that whole system inside how does that work? I don’t I have no idea.
Johannes Urpelainen [04:40]
Yeah, so there’s really two different types. One is the so called flag hotels. So think of like Hilton or Holiday Inn, Marriott, those are the ones that are branded and if you go for those, then you are restricted by their brand guidelines, which can be very strict. So I actually prefer the word With boutique hotels that don’t have a flag, because I can do whatever I want with those.
Sam Wilson [05:05]
Got it. So a boutique hotel that doesn’t have a flag. Does that mean that when you go there, you’re not necessarily like you pull into a town you’re not seeing? I mean, what’s the name of a hotel you’re buying right now? And is it just a name that you guys are giving it? Or is it?
Johannes Urpelainen [05:20]
Yeah, let me give you one example. So we are about to close on this asset. It’s called the cheat River Lodge. It’s a very simple, small nine units in a beautiful location. It’s been operated by this couple now, for 40 years, I think they don’t have any kind of branding beyond a very simple website, and just a lot of word of mouth. So when we buy it, there’s no restrictions, nobody’s going to tell us that you need to have this kind of breakfast. And you don’t need to have those kinds of line ends or anything like that, we can do almost anything we want with that, if I instead went and bought the Hilton, they would have this very long agreement that we’d say this is what it has to look like, this is what the pricing has to be like, This is what the services need to be. They’re very strict about that.
Sam Wilson [06:09]
Got it. Okay, so what’s the play? So you got a nine unit hotel that this couple zoned it for 40 years? I know you mentioned that you’d like to buy for cash flow, but I would imagine that there’s a lot of deferred either maintenance and or, you know, like you said operationally, deficiencies, operational deficiencies in properties like this. So what’s what’s the play for you when you buy this nine year old hotel?
Johannes Urpelainen [06:31]
Yeah, so there’s a few things to do. One is, of course, we do need to do some renovations, there is deferred maintenance. And there’s a few things that just outdated right, so we’ll replace the flooring, we’ll fix a few roofs, things like just got a similar thing you would do in a typical multifamily acquisition. Then on top of that, we put in new furniture, and some other things like you know, coffee makers, fridges, maybe a few new air conditioners, things like that, we work with the third party manager with whom I work before who’s very good at this kind of very small hotel management. And then once we stabilize it, and once we are cash flowing, so that we are not bleeding anymore, hopefully in the next three to four months. Then after that, we get creative. So this one comes, for example, with five acres of land. So we could do glamping, we could do tiny homes, we could put pizza shop, we could put a general store there, there’s just a lot of different things we can do with this one,
Sam Wilson [07:33]
where where does a property and may not give you know specific location, but I’m really just thinking outside of the box of a nine unit Hotel? Where does something like that do well that you feel comfortable then buying enemy? Is that is that? Are there nine unit hotels everywhere? And I’m just not seeing them? Or can you give any shedding light on that?
Johannes Urpelainen [07:53]
Yeah, it’s first of all, it is difficult, because if you have such a small number of units, it’s hard to find management, you cannot have kind of like, on site, full time manager, everything has to be done. And I’m going off contract basis. So that’s tough. But for example, with this one, it’s right on the river. There’s a lot of like fishing, there’s hunting, there’s hiking, there’s all kinds of, you know, sports activities, outdoor activities, and it’s also in a fairly good location. There’s a number of cool small towns around it. It’s not too far off a drive from Pittsburgh, or DC or North Carolina, even if somebody really wants to come to West Virginia. So you just look at these opportunities. And most of them don’t make a lot of sense. But every now and then you find something where there’s an opportunity to add value and increase the cash flow.
Sam Wilson [08:45]
I’ve heard of people taking small boutique hotels like this in turning a more into Airbnb style, you know, getting rid of the front desk getting rid of kind of a lot of the ancillary services that don’t necessarily generate revenue. Is that is that part of your strategy?
Johannes Urpelainen [09:02]
Yeah. So I think if you think of the management here, I think many of the hotels traditionally have had these, for example, somebody at the front desk, right? That really only makes sense if you’re looking at the kind of full service where people expect kind of white glove treatment, right. But the boutique hotel typically you don’t need that. So you can save quite a bit of money by not having front desk at all. You definitely want to list on Airbnb. So for example, this one has these cabins cabins are great for Airbnb because people pay a lot more for them than they would for a hotel room. So you want to list those. But at the same time, it’s also funny seeing everybody going from Airbnb hotels, when people start seeing these really these economies of scale, because the problem with Airbnb, it’s hard to scale. Every asset is different than it’s just one asset. So unless it’s a complete blockbuster, you’re talking about maybe like 5060 say About $1,000 of gross cash flow, it’s very hard to scale that up.
Sam Wilson [10:05]
Hmmm, that is awesome talking about third party management of this, how did you locate a third party manager willing to take on just nine units, or I guess nine?
Johannes Urpelainen [10:14]
So, I had worked in other Airbnb acquisition acquisitions with the same guy whom I met through one of my business partners, he’s done a good job with the others, he’s bringing in good money. And the management is generally almost hands off for us every now and then we need to do some things that the owner needs to do. But generally, the performance has been good. So I just asked if he felt he would be able to take this on. And he said, it looks looks doable. He gave us some estimates of how much money he thinks we can make with this, those were in line with our estimates and what the property has been doing historically. So feel pretty confident about that.
Sam Wilson [10:51]
How do you underwrite these? I mean, is there the guess what do you project if you don’t mind sharing kind of, you know, where it is now to where you think you can take a property like this.
Johannes Urpelainen [11:03]
So the underwriting is surprisingly similar to multifamily. You have all the same things, you have different expenses, your property management fees, you have gross income, the few things that I think are different one is the seasonality. So you gotta be ready for those slow seasons when you have to have reserves, and you might barely break even or even be at a loss. So that’s a big one for something like this, these nine units, I think, right now, their gross total is probably something like 150,000. By just improving management, a little bit of renovation, we can probably add another 20 to 25%. And if we then get into this, like lamping, and other general store mode, we might bring in another 15%. So at that point, we would pay well over 200,000. And that would be a pretty good place to be.
Sam Wilson [11:53]
Got it. Okay, that is that’s absolutely awesome. I love I love looking off the beaten path. I mean, the hospitality sector, of course, has done really well in the last couple of years. Is there? Is there any fear and or contingency plans if we go into a recession? Or if maybe the cash flows change?
Johannes Urpelainen [12:15]
So for a recession, I’m not too concerned about the recession, because in my role, looking at the data that we have, these malls are limited. Service hotels tend to do well, even in a recession, they might not do crazy well, but they’ll do well enough that we can pay the mortgage and the expenses and all that something like the pandemic, if that happened again, that would be a tough place to be. But I think maybe now that we’ve seen it, once we have a better idea of how to play it, I wouldn’t expect the same kind of uncoordinated, you know, a blind get a lockdown. So I think we would say something a lot more kind of targeted and sophisticated next time around.
Sam Wilson [12:57]
Right, right. Yeah, absolutely. You have been involved in some really unique, unique investments. I know you and I talked a little bit about a 3d printing opportunity that you’re involved in right now. Can you give us give me some insight on that what kind of turn left out of the hospitality space maybe a little bit and talk about this other opportunity that you find compelling?
Johannes Urpelainen [13:20]
Absolutely. This was actually a key reason why I went from being just a passive investor to, to active. So about a year ago, I made a venture capital investment, my only venture capital investment in my life, to this company called Family communities, which is based in Houston, Texas, and they use 3d printing technology to produce these duplexes that they will then rent out so it’s built to rent. But with this technology that dramatically reduces the cost and time to develop this when I made the investment and visited them. The CEO actually asked me to help them. So I joined the company. As a consultant, I’ve been helping them with developing these sites, looking at the markets doing some underwriting, financing, things like this. And what is cool about this really is that real estate is kind of a legacy industry, right? We don’t see too many new innovations roughly the same as 100 years ago. But with 3d printing, that could change because if we can drive down the cost very significantly, and build these a lot faster, we could really start making progress on the housing shortage, which is pretty extreme in the United States today. So I’ve had a great time working with this company. And that experience kind of gave me the confidence to go and start doing my own joint ventures and syndications.
Sam Wilson [14:41]
That’s really cool. Kind of a backdoor entrance into the into the real estate market as
a whole. What size of home how fast can it be produced? What are the major? Obviously a housing shortage is one of the components that we’re trying to solve. But how does this How does this meet many of the problems that we’re facing today?
Johannes Urpelainen [15:03]
So let’s say we have a family that’s looking for a home and they want a house, they don’t want to live in a studio apartment or something like that. Okay. And it’s pretty hard to find those today, just a year ago, they were very expensive. Now, they’re a bit less expensive, but it’s 7% interest rates, the Bank is not going to give you the money, right. So what we do is we build these 3d printed duplexes, so two units in each, they have a yard, and the only common wall is between the garages, right. So there’s not really the sense of living next to a neighbor, right, they’re more like separated from each other, the size of the unit is about the smallest one that we have is about 1300 square foot. So it’s like a very small house size, it comes with a full garage, where you can actually fit three cars, there’s a, there’s a backyard, there’s a fence, all the appliances, everything is very top notch, and then you pay rent as if you were living in an apartment complex, but it feels more like single feminine living, which again, for families in particular is in very high demand.
Sam Wilson [16:17]
Are they? So when you say 3d printed? Does that mean the walls? Does that mean the roof? What is what of this is 3d printed? And how does it speed up the process?
Johannes Urpelainen [16:27]
Yeah so of course, you need to start with the site work. And that is done. As always, there’s the usual leveling, beside the infrastructure, all that that is what it is, we don’t have any major innovations on that. But then when you actually put together the kind of like structure of the house that is done with the 3d printer in one week, okay. So instead of, you know, weeks and weeks, months of work, you put the structure together in one week, and it’s designed in a way that everything’s kind of ready, the electric is very easy to put in, the plumbing is raised to put in, you put the roof on it, you put in the flooring, the appliances, and you’re basically ready to go. So we can reduce the overall time by months, we can probably reduce it to a half by with 3d printing.
Sam Wilson [17:15]
Wow, that’s wild. What about building codes? I mean, I don’t even know the right question to ask on this. But the materials that whatever materials it takes to do 3d printing, how has been getting that incorporated into the local building codes? What’s what’s been that process? Like?
Johannes Urpelainen [17:34]
That’s a great question, it is a very important issue. Fortunately, Texas is an easier place to do this than many others, because mostly, the building codes are pretty easygoing. And zoning is not extremely restrictive, what we did for the first time, so this is a very early stage, this is a tech company, right? With the first side is just build a good relationship with this community. It’s called Waller. It’s northwest of Houston, about an hour’s drive on their Houston Austin Highway, which was just opened up about a year back and it’s now seeing this massive migration into it, because a great place to live. And so we just built this relationship with tell their, you know, Town Council and all the other people that we have the solution here we can build first dozens and then hundreds of units for you. We can bring in people here, there is a very large factory there with this company, Daikon, which is, I think, the largest producer of H back equipment in North America. So their biggest site is there, that site alone has 10,000 people working there. And they typically drive two hours to work right now. We can reduce that to 30 minutes. So it’s very attractive for the community. Think about the tax income economic with this.
Sam Wilson [18:49]
Yeah, absolutely. No, that’s really, really fascinating. I love I love out of the box solutions. And this will be a fun one to see as you guys bring it to market and see this kind of catch on. Johanna, it’s been a pleasure having you on the show today. I’ve learned so much from you. I don’t know much about either of the things you talked about today. So I got a full education here listening to you talk just about 3d printing, manufactured housing, talking about taking hotels, and getting into the hospitality space, how you got involved in that, where you’re finding opportunity, bringing property managers on and how you’re turning those, and really just finding unique opportunities here in the commercial real estate space. So thank you for taking the time to come on and share your experience with us today. If our listeners want to get in touch with you learn more about you. What is the best way to do that?
Johannes Urpelainen [19:36]
Yeah so I would first of all, check our website. It’s called Oasis equity. So just always equities.com and easiest way to get in touch with me directly is on LinkedIn. I’m the only $100 bill on the world so I’m pretty easy to find.
Sam Wilson [19:51]
Fantastic. Dr. Johanna, certainly appreciate your time today. Thank you so much. We’ll talk again soon.
Johannes Urpelainen [19:56]
Thanks for having me.
Sam Wilson [26:21]
Hey, thanks for listening to the How to Scale Commercial Real EstatePodcast if you can do me a favor and subscribe and leave us a review on Apple podcasts, Spotify, Google podcasts, whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show it helps us both attract new listeners as well as rank higher on those directories so appreciate you listening thanks so much and hope to catch you on the next episode.
