Imagine a real estate investing niche fueled by society’s demand for higher education, then factor in a government unable to meet the housing demand, created by an endless drumbeat of “you’ve got to go to college or you’ll be a miserable failure in life” messages heard by millions of American high school students.
Real estate investor Doug Fath invests in student housing and apartments, and he claims it’s an untapped growth market for the foreseeable future.
Fath paints a rosy picture of the future potential in the student housing, real estate investing niche: In the next decade, about 80 million echoboomers (the children of baby boomers) are expected to graduate from high school and make their way to college campuses all across America. When they arrive on campus, they’ll need a place to stay. The problem? Currently, on-campus student housing capacity can only accommodate about 30% of the expected rush of incoming echoboomer students.
While Fath’s investing model focuses on student housing because of the potential for growth in the coming decade, he also finds that today’s real estate investor can tap into the demand for apartments fueled by the foreclosure crisis. “I think apartments and student housing is the best sector for investors to make money in the next 3-5 years,” Fath said.
“Similarly, apartments are favorable due to supply and demand. Because of the current economic environment and the financial irresponsibility of many Americans, it’s more difficult for people to purchase a home so they are forced to rent.”
While this double-barreled demand promises to fuel strong growth in both real estate sectors, Fath says he’s not having difficulty locating good investment properties. Rather than using real estate brokers to locate investment properties, Fath said, “We purchase the majority of our properties directly from the owners who are in a distressed situation. Typically the properties are abandoned, dilapidated and have debts owed to the property.”
One of the secrets to Fath’s success is to purchase properties at significant discounts, then make improvements to increase the value of his investments, although he says he doesn’t focus as heavily on the current value of the property.
“Since I normally purchase properties that need a full gut renovation, I’m more concerned about the value upon completion. I want my total costs to be 65%-75% of the ARV (After Repair Value). The formula I use to make my offer is
(ARV *65%) – Construction Costs – Negotiation Room = Initial Offer.”
He says it’s also important to be aware of the cashflow an investment property will produce on a monthly basis when making investment decisions. By investing in the cashflow a property will produce, Fath also doesn’t worry too much about possible changes in the federal income tax code.
“The majority of talk is about additional taxes on earned income and capital gains income. I primarily invest in cashflow (passive income).”
Although some investors are hesitant to invest in real estate – student housing, apartments or other investment types – Fath doesn’t share their pessimism. Even though he believes the market has yet to hit bottom, he clings to his faith in the opportunities available in today’s market.
“There are still plenty of good money-making opportunities in a down market. Now is an opportunity to increase your financial education, get experience and make money. Developing the ability to make money in a down market is an invaluable and empowering experience because you now know you can make money in any market.”
In addition to being a fulltime real estate investor, Fath also teaches students how to invest in student housing.