Scholastic Capital Update #5: The Bill

Hi There,

Hope you are well, and happy early Holiday Season to you and your family!

It’s been such an interesting few weeks with some big developments in the real estate space.

As a result, this update will be a bit longer than standard!

We’ll cover:

• The Inman Article

• Market Update

• The “End Hedge Fund Control of American Homes” Act

• Interest Rates: Going Down

• Fundraising Update: Going Up

• Next Steps

Let’s dive in!

Inman Article

Scholastic had a fun moment earlier this week when an article was written about us on Inman.

(For those unfamiliar: Inman is one of the biggest real estate publications in the world, with an estimated 1 million+ online page views per month).

That article is linked HERE, and the non-paywall version is HERE.

Market Update

As of 5:21pm on December 12th, we currently have:

• 1,821 homes on the market across our 21 target zip codes in Minnesota, Wisconsin, Illinois, Indiana & Michigan (down 5.5% from last update)

• Of those, 249 homes fit our binary buy box parameters. We call this check #1 (up 9.4% from last update)

• Of those, 112 homes passed manual underwriting and are at a quality level we would offer if the price is right. That’s check #2 (up 24.1% from last update)

• Of those, 28 homes passed financial underwriting and are at a price point where we believe we could profitably buy and rent these homes. That’s check #3. (up 213% from last update)

This is a fascinating market we’re in right now. There are fewer homes on the market.

However, the homes on the market are of a much higher quality than two weeks ago. It’s an interesting development and one we’re tracking closely.

One note: how we do this:

We’ve partnered with a fantastic developer to build a pretty nifty tool that allows us to do this work through Check #1 and enables a straightforward workflow for Check #2 and Check #3.

In a later update, we’ll share a full breakdown of how it works and why it’s built the way it is!

The “End Hedge Fund Control of American Homes” Act 

As you may have heard, members of Congress from both the House & Senate introduced an Act that would ban certain private funds with assets under management of at least $50 million from buying single family homes.

It’s uncertain whether this bill would ever pass, but it is on our radar. If the bill does pass, it may have both negative and positive effects on Scholastic.

On the negative side, the bill may make it less likely for a larger financial institution to buy a tranche of our homes in a batch sale.

On the positive side, Scholastic may face less competition from large asset managers, enabling the fund to achieve higher returns when holding properties for the long term.

One other point to note: Scholastic is below the $50M threshold. As currently written, the bill does not apply to us.

All of this is just speculation right now, but we are actively monitoring the Bill’s progress & wanted to make you aware of it in case you hadn’t seen it.

Interest Rates: Going Down

In good news, interest rates appear to be ticking down over the past couple weeks.

We spoke with our primary lender on Tuesday and he confirmed the rates we’d lock today are materially lower than what they were just a few weeks ago (about 35 basis points).

Wednesday’s Fed meeting also appeared to install market confidence regarding rate cuts in 2024.

We still have multiple lending options on the table, including line’s of credit & term loans (both fixed and floating rate).

What they all have in common is a 30 year term. We view a 10 year note with a balloon payment as an unacceptable amount of risk at current rates, especially when 30 year money is available!

Fundraising Update: Going Up

Minimum Update

We’ve made the decision to raise our fund minimum to $250,000. This amount is both more in line with similar funds to ours & enables an ideal number of investors.

(This minimum change does not apply to any existing investors, who received notification of this change last week)

As always, we reserve the right to accept check sizes less than the minimum in certain, limited circumstances.

Progress Update

There has been a noticeable increase in the number of investors & RIA’s reaching out to us to discuss joining the fund.

Our strong suspicion is this increase can be explained by end of year bonuses. Most of the individuals we’re hearing from are in high-bonus careers like Finance.

Our best guess is they just got their bonus number for the year and are therefore ready to deploy capital!

Next Steps

We’re both getting ready to celebrate the holiday season with our families. Our best wishes to you and your families!

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!