Scholastic Capital Update #4: Process Design

Hi There,

Hope you are well, and happy (late) Thanksgiving to you and your family.

We’re excited to share a bit of an update regarding Scholastic & how things are progressing.

Today, we will cover:

• Portfolio Update

• Market Status

• Process Design (& why we care about this now)

• Fundraising Status

Let’s get started.

Portfolio Update:

Scholastic Capital will start purchasing homes next April/May. However, one of the General Partners (Sean) has tested this strategy for years with his own money.

Therefore, we decided it was prudent to include a section regarding the existing portfolio as a regular update.

One metric we track on the existing portfolio is the Maintenance Call Rate. Right now, we see:

•  12.7% chance we get a maintenance call on a given property in a given month

Two items to note.

First, the maintenance call rate has been dropping. Our last call was August 11th. A tree was damaged in the storm and needed complete removal for $350.

Second, this maintenance call rate is significantly lower than other SFR fund’s we’ve seen.

We hypothesize this is due to buying Class A homes vs Class C homes. We buy these homes from prior owner-occupants who took great care of them to protect their equity.

We hope this trend continues, but we are carefully tracking it for underwriting and staffing decision-making.

Property Taxes

Our upcoming property tax bills for December 2023 were just released. We aim to be extremely conservative here and always over-forecast.

As expected, the property tax bill did come under forecast. That should boost cash flow a touch higher than projections for the year.

Either way: it’s always a nervous moment to log online and see what the property tax amount ended up at!

Market Status

As of 9:01pm on November 28th, we currently have:

• 1,926 homes on the market across our 21 target zip codes in Minnesota, Wisconsin, Illinois, Indiana & Michigan

• Of those, 234 homes fit our buy box parameters. We call this check #1

• Of those, 85 homes are at a quality level we would offer if the price is right. That’s check #2

• Of those, 13 homes are at a price point where we believe we could profitably buy and rent these homes. That’s check #3.

One definite trend; homes are sitting on the market longer. Of the 85 homes we think are quality, they average a massive 89 days on the market.

Therefore, we could likely negotiate prices down considerably on many of those homes. My best guess is there are another 20-30 homes out of the 85 at check #2 (in addition to the 13 already fairly priced) we could profitably buy.

We are very far away from the days of 2021 where everything got 30+ offers the first weekend!

Process Design (& why we care about it now)

A key part of our day-to-day today is process design. While we have the “test homes” purchased to test our thesis, the fund will own significantly more homes.

That requires many processes to be built out to ensure everything is standardized & completed on schedule.

For example, we are going to put these locks from Showmojo on every single home we purchase.

These locks have several benefits.

First, they enable self-guided tours. This means a prospective tenant can receive a one-time access code (after verifying their name & providing a credit card) to see the property themselves. This gets the properties rented faster.

Second, they enable easier key management. When a tenant moves out, we can change the code to the house remotely & immediately.

Third, we can grant one-time access codes to maintenance technicians as needed as well.

What does that mean?

It means we:

• Need to buy the appropriate number of locks

• Need to ship the right number of locks to the right city on the right day

• Need local boots on the ground to install the locks on the house on closing day

• Need someone from the fund responsible to ensure all of this happens.

None of these are obviously that complex. However, they do need some sort of process or plan at some point!

Why does it matter now?

Right now, we have time. We’re not buying homes now.

During May/June/July, we’ll likely purchase 3-5 homes a week. Time will become a more precious commodity.

Therefore, we want to “invest” the time now to build a process to make us more efficient next summer. This process is just one example.

Fundraising

Fundraising continues to go well. At this point, we have a steady flow of investors joining the fund.

A key stat: our average investor has invested roughly $170,000.

This average can change materially, especially if a family office decides to join the fund via a seven-figure investment.

However, we can use the $170K average to approximate the entire fund size. For the $10M we aim to raise, that implies a total investor base of roughly 50-60 investors.

That’s a great number and a number we’re excited about!

The good thing for us & prospective investors is that we still have a significant amount of time to get to know each other before making an investment.

Next Steps

On our end, we repeat these three items:

• Daily study of the market

• Process Design

• Fundraising

It’s been an absolute pleasure getting to know so many fantastic people over the past few months.

If you, or someone you know, might be interested in single-family homes in elite school districts + long term leases, we’d always be happy to chat!

Feel free to grab time HERE or reply back to this email with any questions!