Scholastic Capital is an evergreen real estate fund that buys single family homes in elite school districts. We then rent those homes on long term leases to highly qualified tenants interested in being there for the school district.
We do this on behalf of our investors looking for a “high floor, bond-like” real estate fund. Our investors, and new investors who may join us, are typically interested in our monthly cashflow distributions, equity appreciation, and depreciation tax benefits.
As always, italic text below is explanation of datapoints and normal text is our commentary
Happy Holidays!
I shared the investor version of this newsletter last week. By the time you’re reading this, it’s likely into 2025.
With that in mind, I hope this update is coming to you as you enjoy a really nice holiday season with your family and loved ones.
This past month has been a busy one with Scholastic, with some exciting updates that our investors heard about in this update. We unfortunately cannot share some of those with the public just yet, but hope to be able to do so in the coming weeks.
Without further adieu, let’s jump into the key Scholastic data
Key Data
Overview Data
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Homes Owned: 21
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Occupancy Rate: 95%
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Average Rent: $3,414
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Zip Code Market Share: redacted for investors only
Tenant Data
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Average Lease Length Remaining: 17.7 months
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Average Tenant Salary: $228,527
This metric shows us how comfortably our tenants can afford their rent. The higher their income is, the less likely Scholastic is to experience any issues of non-payment. A higher tenant income means we can charge a higher rent as well.
Maintenance Data
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Cost to repair per home per month: $290
This datapoint shows how much we spend monthly per home on maintenance. This is extremely useful for forecasting and budgeting. Even if a home has $0 in maintenance spend in a particular month, we can escrow this amount for the inevitable maintenance expense
Home Valuations
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Average Purchase Price Per Home: $480,548
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Current Average Home Value: $542,171
The current home valuation changes quarterly when our fund administration accounting firm re-values all of the homes. We are not involved in setting valuation and solely rely on third party values.
Debt Data
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Current Average Mortgage Balance Per Home: $320,414
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Portfolio Loan-to-Value (LTV): 59%
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Current Average Weighted Interest Rate: 6.15%
Investor Data
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Opt-in rate to DRIP: redacted for investors only
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Newsletter growth rate: +12 readers this week
Historically, roughly 75% of our investors read this newsletter first to get to know Scholastic and how we think. As new readers grow, the number of investors in the Scholastic family likely grows as well.
Distributions
We typically pay out distributions to our investors on the third Friday of every month. Some investors choose to take those in cash, paid via ACH to their bank account. Others choose to reinvest those distributions via a “DRIP” functionality, similar to what you could do with a public stock.
A huge driver of distribution amount is maintenance events. That is the only major expense that isn’t exact in forecast.
For example: we can be pretty accurate with our property tax bill forecast and insurance is contractually agreed upon for a 12-month term.
When it comes to maintenance, we can’t reach the same level of certainty. There are multiple factors that impact on the maintenance costs. Some of them are independent of the property itself, such as the weather. For instance, we repaired a mailbox that was damaged by a storm, and we removed a tree that was struck by lightning.
Due to this factor of uncertainty, we decided to add further data specifically on this matter.
Cost to repair
Maintenance costs currently average $290 per home per month, which aligns with our forecast of $250–$300 per home per month, depending on size/age of home. This figure reflects the initial spike in requests that often occurs when new tenants move in, as they identify and flag issues early on. We anticipate a gradual decline in both costs and requests as we move into a “steady state” with this first batch of homes.
Regardless, we will continue to escrow reserves conservatively within the previously specified range to ensure we remain well-prepared for any unexpected maintenance events.
We believe that statistics and data analysis are fundamental tools for managing the unpredictability of maintenance costs. We have a fantastic dataset from one of our advisors that enabled us to get pretty precise here. To that information, we add our own daily updated database that we use to analyze the information to identify areas for improvement and detect anomalies in expenses.
In this way, despite being the least controllable area, we continuously learn to create a more realistic and dynamic expectation, ensuring security for our investors.
Fund Q1 Priorities
With us wrapping up 2024, it’s time to shift our priorities to 2025.
There are two things on our mind for Q1.
A) Even the smaller aspects of our service can be improved
We pay attention to what our current investors say. This is true for every aspect of our business. For instance, we are currently evaluating one of the online platforms our investors use as part of our fund. This is Appfolio Investment Manager, used to send investor distributions, communication, and their K1 tax forms.
The feedback from investors highlighted issues with the set-up time and with customer support.
For that reason, we are exploring switching platforms in Q1. Another software company Juniper Square has already offered us to match our current vendor’s pricing to get us to switch. We’ll consider this in Q1.
Our commitment is to continuous improvement in every aspect of the business. We encourage both investors and members of Scholastic Capital to be transparent with their feedback so we can take it into account and provide the best possible service.
B) Fundraising (95% of time)
Q1 is going to be almost exclusively focused on fundraising.
The timeline here is very similar to last year. We plan to have one big capital call in April. We’ll then use that capital to buy homes in the summer.
Raising capital specifically to get more homes into the fund is the highest priority for the next six months.
We firmly believe the fund is more valuable as it adds more homes. The risk of vacancy/non-payment or similar should also be lower as it’s diffused across more homes.
Here’s how we are thinking about fundraising.
#1: Early Access for Current Investors
Our existing investors will always have the first chance to increase their involvement with the fund. Many have already expressed interest in doing so, and we’re thrilled to continue growing together with them!
#2: Priority for Referrals
Great people tend to know other great people. If you are interested in becoming part of the Scholastic community, and you know a current investor, consider being referred by them. This will give you priority access before we open to the broader public.
We are extremely receptive to working with you in whatever way would be best for you. We are happy for you being introduced via email, phone-call, or in person.
#3: Open to the Public Starting Mid-January
After early access for current members and referrals, we’ll officially open fundraising to the public in mid-January.
We’re planning a variety of opportunities to connect with potential new members, including strategies that worked well last year and some exciting new ones. This may even include options like members adding their property to the fund or listings through Registered Investment Advisor (RIA) platforms.
If you’ve been thinking about joining, this is your chance to get involved! Stay tuned for more details.
Fund 2025 Priorities
Since it’s the start of the new year, it’s worth talking through yearly priorities as well.
There are several big ones.
#1: Continue Operating
Scholastic is working.
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We bought great homes
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They’re leased to great tenants
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Investors are paid distributions with significant tax benefits
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Investors are up on their equity
For that reason, it’s time to keep doing more of the same. We have no intention of chasing a shiny object or similar. It’s time to keep executing.
To do that, we’ll raise capital this Q1/Q2 and start buying homes Q2/Q3 of this year.
#2: Grow the team
We’ve got a great time thus far. Scholastic has three full time team members:
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Sean, Managing Partner
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Mira, Operations Manager
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Celeste, Asset Manager
We plan to add two more full time members this year, including a Senior Staff Accountant and a Controller.
That would get us to 5 people full time, which is more than enough to scale through the year. The interesting thing is that SFR funds tend to be very low headcount. We could scale through $50M AUM with that team of five.
As always, we also have our team of six advisors who play a huge role in helping us advance the thesis.
Get to know us
As always, we love getting to meet more folks interested in niche real estate thesis.
For that reason, we have an open Calendly link with 15minute slots. If you’d like to chat niche thesis like Scholastic, real estate, or even joining us as an investor, feel free to grab time HERE.