If you haven’t heard of Doug Fath, you should probably consider moving out from beneath that rock you’re living under.
Team Awesomeness, Meet Doug; Doug, Meet Team Awesomeness.
No, seriously…Doug Fath is a young, serial (not at all in a scary, Charles Manson kind of way) award-winning entrepreneur and investor from Philly who started four companies (and sold two of them) before he graduated from New York University with his Business degree.
He is the founder and CEO of Faithful Investments, LLC, a real estate investment and development company with multi-million dollar portfolios, and the creator of Wealthy Passion Corporation, a company that helps generate income through entrepreneurship and investing (I’m exhausted already).
He was named to the Empact 100 list of Top Young Entrepreneurs in the United States and was recognized for this award at the White House (are you impressed yet?).
Wait, there’s more…
He is a winner of the 2004 Bank of America Entrepreneurship Award and has been featured and interviewed by ABC News, NBC News, The NYU Report, the Philadelphia Daily News, and Bloomberg TV.
Amazing, right?
And to top it all off, Doug has a “sweet spot” for the uniquely enticing student housing niche. Which brings me to today’s lesson – the first in a series of lessons soon to come from The King of Student Housing Awesomeness himself.
Why Student Housing?
If this isn’t the first question you ask straight out the gate, it should be. And it’s one that Doug recommends everyone in real estate should ask before they dive into the student housing market.
So, what’s the answer? Let’s ask the man himself…
Mogul: Hey, Doug. Can you kind of “set the stage” for people regarding why they should consider student housing, and maybe you could do that within the framework of your own story? A little background on how you got into it, and use that to kind of explain why it's such an opportunity?
Doug: Yeah, sure. I started out actually doing low income housing and moderate income housing, because I was really looking for cash flow opportunities, and I was looking where there was a need.
So, that's really first and foremost: When you're investing in Real Estate, you want to identify demographics, or markets, where there's a problem that you can provide a solution for. That was why I started out with the low income housing, because demographics showed that there were a lot of people who needed affordable housing, and there wasn't enough supply for it.
Similarly, as I was looking at some low income stuff, I stumbled upon some properties, and the person that was selling them to me said, “Oh, you could rent this to college students”. Now, I thought that rental for a family would generate about $800 a month, and he's telling me, you could rent this to college students for $2,000 a month.
That's more than double the income I was planning to get from that piece of property. That was actually how I stumbled upon student housing, and after hearing that, I actually started to do some research and due diligence – and that's really where I learned about the strong demographics that student housing has. For example, colleges and universities can only house 30% of their current enrollment. That's a national statistic across the United States.
On top of that, over the next ten years, the demographics show that there are 80 million eco-boomers. Those are the children of the baby boomers. They're going to be turning the age of 18 soon and ready to enter college.
So as it is today, the colleges can't even keep up with the demand, and in the next decade there's going to be a huge spike in college enrollment. When you look at if from purely a demographic standpoint, you can see that there's a huge need here. This isn't a need that's going to fizzle out after one or two years; this is need that's going to last for at least the next decade.
That's one of the things that I always look at in my 'why?'. I want to make sure that the demographics are strong, and that there's going to be a need that I'm going to fill – but, also, how long I’m going to be able to fulfill that need. I'm not looking to do something that only has a one- to two-year window. I want to look at something that has an extended window – something from which I can continue benefiting for years to come. Student housing has both the demographics as well as that extended window of opportunity for me to enjoy.
Mogul: So, just to clarify what you mean… When we talk about student housing, we’re talking about multifamily properties, right? What kind of range of units would you give the description of student housing?
Doug: That's a great question. Student housing can start with one unit, and it did for me. When I started with student housing, I bought a four bedroom, two bathroom house. It was a single family, and I rented it to college students. I rented it room-by-room to college students. Now after doing that for a few years I then ended up getting into apartments and no longer renting room-by-room, but rather renting by the apartment, and multi-unit builds. A lot of the multi-unit student housing properties that we've done over the last 6-7 years have been two- to six-unit apartment buildings that we've developed.
Actually now, rather than a bunch of scattered site, two- to six-unit buildings, now we're looking for more student housing under one roof – meaning one apartment building, with anywhere from 30 to 100 units. That's another thing I like about student housing. You can start small, you can start with that single family house – and I know that is possible, because I did it myself.
The first student housing property that I purchased, represented a total cost (all-in-all) of $75,000, and that thing rented out for $2,000 a month. So you can start small, but it's also scalable.
Mogul: Okay, let's say you're talking a six unit building that is close to a university – something that could be fair game for student housing – versus the same six unit building located 20 miles away from the university. What is the primary benefit, besides having students available to rent? Are you able to actually get more rent because they're students? Is that the deal?
Doug: Yes. That's the deal. It's the old adage about the three most important factors of real estate investment – location, location, location! This is no different here, in the sense that you're going to get a premium for your rents when you're located on campus, or right near campus. And just to clarify: for the stuff that we do, it's technically referred to as an “off campus” property. It is considered to be “off campus” because it's not a dormitory.
We're off campus, and were only a few blocks away from the university. So even though it may be considered “off campus”, it only takes a couple of minutes to walk to class. That's where we're able to get premium for rents – and that’s because, if you compare our rent to what the dormitories are charging, our rents still represent a huge discount to the dormitories’ rate.
That's one of the reasons why I love this niche – because there's always going to be a need for it. Again, this varies depending on location – but a common thread amongst student housing often includes rental rates of about $500 per bedroom. As I mentioned earlier, I started with that four-bedroom house, and at $500 bucks per bed, it brought me $2,000 per month.
If a student lives in the dorm, they are going to pay $750, $800, or even $900 per month, as opposed to a much cheaper rent that we're offering them. And, on top of that, we're renovating and developing all our places.
So, basically, we're able to offer these students something nice, something newer, and something that has more amenities, compared to the dorms. And there are fewer rules for us to follow… I mean, just think about all the rules that a dorm has!
It's a really nice niche!
Does that make sense?
Mogul: Yeah. So, knowing that, and being able to position yourself competitively (or better than competitively) would be the big play there, compared to a property that is located 20 miles away from campus.
Doug: Absolutely. If you're talking about something that's 20 miles away, then I wouldn’t call that “student housing” – even if you're renting to students. Your tenants may be students, but you're not really getting any premium for that. If you're really 20 miles away, at that point, I would expect that you're getting comparable rent if you were to just rent that to a family or someone else.
It's when you're on campus, or right near campus, like I'm talking about here. That's when you're able to get the premiums I'm talking about. And that's an important piece to know – especially if you haven't gotten into student housing yet, and you're looking to get into it.
The cat's out of the bag now about student housing. For a while it used to be a secret, but now, a lot of big players are investing in student housing, so people know.
So a seller is always trying to say, “Oh, student housing means renting to students”. But you really have to do your due diligence and make sure that the proximity of the campus is good, so that you're not only able to rent to students, but you're also able to rent to students at that premium rate of at least $500 bucks a bedroom (or whatever the average going rate is for student housing in your market).
If you’re interested in testing the waters of student housing, be sure to take Doug’s advice…
Location – Pick properties within easy walking distance of the targeted campus, in order to maximize the rental rate premiums you can charge.
Research – Do your research and familiarize yourself with rental rates at the nearby dormitories, in addition to rental rates at other “off campus” comparable properties.
Marketing – Familiarize yourself with the university-mandated rules for behavior of nearby dormitories (curfews, guest policies, etc.), and market your property as a more flexible housing option for students.