Hi Friends of Scholastic Capital,
Happy Thanksgiving and Black Friday! We wish you all the best for you and your family and friends this week!
It’s a good reminder too. Scholastic currently has 21 homes. There are a lot of people enjoying Thanksgiving right now in a home owned by Scholastic.
The onus is on the fund to make sure these are quality homes that allows our tenants to enjoy a comfortable, safe Thanksgiving. The oven is not going to break in the middle of making a turkey, the power will stay on and the house is warm.
This business is not just numbers on a spreadsheet. People live their lives in our homes, and we need to ensure they can celebrate a wonderful Thanksgiving in them!
At the same time, we need to draw a line and also support the Scholastic investors to ensure they earn a return on their investment.
To that end, we just paid out our second monthly distribution to our investors. They get their distributions as direct deposits to their bank account each month now, and we expect that to continue monthly going forward.
Below is an edited version of the update we shared last week with investors.
The investor email contains much more detail and commentary on topics that we unfortunately cannot share just yet with this newsletter. However, I can say that Scholastic has a lot of momentum right now.
Key Data Overview
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21 homes owned
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Average Rent: $3,453
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Average Tenant Salary: $203,733
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Average Purchase Price Per Home: $480,548
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Average Debt Term: 30 years
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Portfolio Loan-to-Value (LTV): 59%
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Zip Code Market Share: 8.61%
Distributions & Equity
Distributions have largely stayed the same this month vs last month.
The big news on distributions is a “DRIP”, meaning a dividend re-investment plan. This is very similar to how you can set up a dividend re-investment with a public stock on Schwab, Fidelity, etc.
We have heard repeatedly from our investors that they would like the ability to do this with Scholastic. For that reason, an LPA amendment is currently with our investors that proposes two changes to the LPA.
(The LPA = Limited Partner Agreement, or in it’s most basic definition, the contract between the investors and Scholastic).
We cannot offer the DRIP unless the investors allow us to edit the LPA to do so.
If and when the amendment passes, we expect about half of our investors to sign up for the DRIP.
Performance Commentary
Performance right now is largely tracking along expectations in the fund. With these being higher quality homes, there are limited touch points with tenants at this time.
This has enabled us to do a big data project to go back through our existing data. We’ve found a few “upside” levers that we hadn’t appreciated before.
The biggest of which is rent prices. We now have strong reason to believe that rent prices could very well grow faster than expected.
If this continues, we are optimistic for the associated NOI growth.
Regulatory Update
We received feedback from a few existing investors that they would like more perspectives from us on regulation either for or against single family home funds.
There are two big topics we’re tracking
Corporate Ownership of Single-Family Homes:
A Senator proposed a bill last year that would limit corporate ownership of single family homes to 75 homes. At the time, we believed it to be a “talking point bill” the Senator introduced during his election year so he could tell voters he was working on their behalf.
This bill did not gain traction and the senator did lose his reelection bid. We haven’t seen significant commentary on this from other politicians, but we are actively monitoring the space.
Depreciation Tax Incentives
Scholastic, along most real estate funds, uses accelerated depreciation benefits to help shield most investors distributions so they owe no taxes on most of their Scholastic income. (Everyone’s tax situation is different-talk to your accountant).
These depreciation benefits are currently phasing out and we expect them to benefit Scholastic investors for roughly another 7 years from today.
However, these depreciation benefits were enacted into law during the previous Trump administration tax cuts.
It is possible these benefits may come back. We’ve seen a big uptick in questions from current and prospective investors about this.
The short answer: our guess is as good as yours on whether or not the depreciation benefits come back!
However, we are closely watching this and it appears many investors are too
Fund Priorities
In January 2025, our focus will shift to fundraising ahead of the 2025 buy season.
We’ll give existing investors and anyone they refer the “first right of refusal” to join Scholastic. After that point, we’ll open the doors more broadly to other investors who might want to join the fund.
Get in touch
As always, we enjoy hearing from you! Let us know of any thoughts and questions!