December 18, 2024 • 28 mins
Click here to view the episode transcript
ABOUT SEAN O’DOWD
Sean is the General Partner for Scholastic Capital. Scholastic Capital buys single-family homes in high-end public school districts and rents them to families on long-term leases. He started his career as a consultant with Boston Consulting Group (BCG). He graduated with Honors from The Wharton School of Business. Most importantly, Sean is married with two kids and a third on the way!
THIS TOPIC IN A NUTSHELL:
Sean’s career before real estate
First few investments
What they do at Scholastic Capital
About the Deal in Illinois
What we like about this asset
Their criteria and How to Identify their target asset
Leasing & Identifying Target Rents
Underwriting process and challenges
KPIs and rent increases
Typical Expense ratio of their portfolio
Financing and hold time for this asset
About the Evergreen Fund model
Why do you think this model is working amidst the price surge?
Investor returns and distributions
Current project and Target acquisitions
Connect with Sean
KEY QUOTE:
On Investing in Single-family homes in Elite School Districts:
“This model works because of accessibility. If you're looking to move into one of these good school districts for 4-6 years for multiple kids, renting makes more sense than buying a house. “
SUMMARY OF BUSINESS:
At Scholastic Capital, we create the opportunity for investors to partner with us through our laser focused strategy of buying single family homes in elite school districts and renting them to families on 3+ year leases. Our investors love our planned monthly distributions, equity growth, depreciation pass through, minimal use of leverage, and the multi-year leases to tenants.
Scholastic Capital is a rolling, evergreen fund that continuously admits new capital. New investors will have an immediate interest in the underlying portfolio of single-family homes in high end school districts.
ABOUT THE WESTSIDE INVESTORS NETWORK
The Westside Investors Network is your community for investing knowledge for growth. For real estate professionals by real estate professionals. This show is focused on the next step in your career... investing, for those starting with nothing to multifamily syndication.
The Westside Investors Network strives to bring knowledge and education to real estate professionals that is seeking to gain more freedom in their life. The host AJ and Chris Shepard, are committed to sharing the wealth of knowledge that they have gained throughout the years to allow others the opportunity to learn and grow in their investing. They own Uptown Properties, a successful Property Management, and Brokerage Company. If you are interested in Property Management in the Portland Metro or Bend Metro Areas, please visit www.uptownpm.com. If you are interested in investing in multifamily syndication, please visit www.uptownsyndication.com.
#RealEstateInvesting #RealEstate #AssetManagement #CashFlow #SingleFamilyHomes #HighEndDistrict #SchoolDistricts #BuyBox #MidWest #Underwriting #FundModel #InternalRateOfReturn #Acquisitions #Leases#NetOperating Income #PublicSchoolDistrict #LongTermLeases #EvergreenFund #PrivateEquityFund #InvestmentOpportunities #S
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Episode Transcript
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Intro speaker (00:03):
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Trent Werner (00:40):
Welcome back to another episode of the Deal Deep
Dive segment on the WestsideInvestors Network podcast. I'm
your host, Trent Werner. In thissegment, our featured guests
will share their unique storieson a specific deal they've
invested in. We will dive deepinto finding the deal, financing
the deal, writing an offer, andthe due diligence. Do us a solid
and smash that subscribe button,leave us a rating, and share
(01:03):
this episode.
And now, let's dive deep.Welcome back to the Westside
Investors Network podcast. I'myour host, Trent Werner. Today,
we are joined by Sean O'Dowd ofScholastic Capital. Sean's gonna
share his story investing insingle family real estate with
his now wife and turning thatidea and concept into a full on
(01:24):
fund with a partner atScholastic Capital.
Their model consists of buyingsingle family homes in high
level school districts andrenting them on longer term
leases. Now let's welcome SeanO'Dowd. Alright. We got Sean
O'Dowd with Scholastic Capitaljoining the Westside Investors
Network podcast today. Sean,thanks for taking the time to
(01:45):
talk with us.
Sean O'Dowd (01:47):
Thanks for having me. I'm excited for this.
Trent Werner (01:49):
So Sean has a very interesting business model,
which we will hear more aboutlater on in our conversation.
Scholastic Capital, his company,buys single family houses in
great school districts and rentsthem out long term. Again, we
will get more into the detailson that here shortly, but I
wanna hear about Sean O'Dowd.And did you start off in real
(02:10):
estate straight out of college?Did you have a different career
that led you to real estate?
Who is Sean O'Dowd?
Sean O'Dowd (02:15):
Yeah. So I, I did have a different career when I
got out of college, althoughreal estate was kind of a a when
not if situation. So I I moved22 times before I went to
college. So that was my, like,initial exposure to real estate.
It was, oh, like, finding a newplace to live is this super fun
thing that my family was doingevery, like, 8, 9 months.
So I got super into it, andsuper interested in real estate
(02:39):
because of that. But right outof school, I, I went to, like, a
business school for for schoolfor college, and I worked for a
consulting firm right out ofschool, before getting back into
real estate.
Trent Werner (02:50):
And how long did you do consulting before getting
back into real estate?
Sean O'Dowd (02:54):
I was with a big firm for 2 years and then I was
independent for about two and ahalf years. So I was doing the
consulting for about 4, 5 years,although I was buying real
estate on the side with themoney I was making from my job.
Trent Werner (03:10):
Very nice. And a lot of people, you might be in
the same boat, but they startbuying real estate while they're
working. And typically, they'rebuying single family homes or
small multifamily. What were youadding to your portfolio during
that time?
Sean O'Dowd (03:22):
So I I did 2 different things. My I was
buying them with my now wife,actually. We bought our first
property together before we wereengaged, which probably was not
the smartest thing in the worldin case it didn't work out, but
we did do that together. Webought 2 small multifamilies,
and then we bought 3 singlefamily houses, 2 very different
strategies. And the the goal wasto kind of test and drive both
(03:44):
of them, and we, really didn'tlike the multifamily strategy.
We ended up with, like, thesingle family strategy.
Trent Werner (03:50):
Very nice. And tell me a little bit more about
Scholastic Capital. What isScholastic, and where does well,
1, where does the name comefrom? Because I'm curious. And
2, what do you guys focus on?
Sean O'Dowd (04:02):
Yeah. So the name comes from, my partner actually
came up with a name, And,gentleman named Michael, he's in
the GP with me. And he came upwith the name. And the reason
why it's Scholastic capital iswe're intentionally buying homes
only in a really high end schooldistrict areas. There's a bunch
of reasons why, but it's it's areally cool part to our thesis
is we only buy in those specificneighborhoods.
(04:25):
And for that reason, we wefigured we might as well go with
the Scholastic Capital name forthe the school district type.
Trent Werner (04:30):
I love it. And how many deals do you guys have, in
your current portfolio?
Sean O'Dowd (04:35):
We've got 21 homes. It's about 11 and a half
$1,000,000 worth of real estateworth, and we're we're buying
about 4 to 5 homes a month rightnow. So we we we we just started
buying under the fund modelabout 4 or 5, 6 months ago, and
we're we're scaling up prettyquickly.
Trent Werner (04:52):
Very nice. So today, the deal that we're gonna
focus on is one from a coupleyears ago. I do wanna touch on
some of your more recent stuffhere in a little bit. But you
mentioned that you had a dealfrom a couple years ago that you
purchased with this idea andthis concept and this model,
located in Illinois. Tell meabout this one.
Sean O'Dowd (05:13):
Yep. So this was one of the first deals that my
wife and I personally bought tokinda test this thesis. It's now
part of the fund. So this deal,it's a single family home and a
really high end school districtin Illinois. We bought it for
$440,000, 3 bed, 3 bath, 1900square feet.
Trent Werner (05:32):
Very nice. And how did you purchase this deal?
Sean O'Dowd (05:35):
So this was MLS. So we we bought it off the MLS
because we only buy in reallygood school districts and
because we're buying homes withthe intention of trying to sell
them to a larger institutiondown the line. There's not a lot
of neighborhoods we can buy in,and there's not there's a lot of
very specific things that we'relooking for in each house, which
means when we see something onthe market and it actually
(05:55):
passes all the filters, we wetend to know immediately. So
this home hit the MLS and, I wasin the living room like 30
minutes later. We were undercontract probably 2, 3 hours
after that.
Trent Werner (06:07):
And what is your criteria other than high end
school districts?
Sean O'Dowd (06:12):
So within within the, like, where we wanna buy,
there's there's a bunch ofdifferent things, but at its
core, it's like we want reallybig school districts. That's our
demand drivers. There's a bunchof data still when we're doing
that. On the supply side, we'reonly buying homes in areas where
the owner occupancy rate is 80,80 5, 90% or higher. In the
country, it's around 60, 65%.
(06:34):
And we're doing thatintentionally because then we're
gonna be sitting in a supplydemand imbalance. A lot of
people wanna get in there. Not alot of rentals available. We're
the only game in town. If youwant the good school district,
we can take a take a higherprice premium as a result.
And then we're only buying inthe upper Midwest because we we
think that's gonna have the bestchance of institutional exit.
That's on the where we're buyingon the home specific side of
(06:56):
things. We've got, like, 17, 18different criteria that we're
looking for. Gotta be at least 3bedrooms, gotta be at least 1
and a half bath, smaller than3,000 square feet, above a 1000
square feet, the kind ofstandard ones. On top of that
speed limit, it's gotta be on aspeed the speed limit is 25
miles an hour or less.
Can't have solar panels on thehouse, no pools at the house,
(07:17):
things like that, that we needto keep in mind because if we we
broke we break those rules, wewon't be able sell that home to
a larger institution down theline.
Trent Werner (07:25):
Very interesting. I didn't I didn't know that. So,
I mean, clearly, you guys havethought about the criteria and,
have found, you know, plenty ofof deals within that criteria.
You said that you only focus onthe upper Midwest. Are you in
Illinois only, or are you in allthe different upper Midwest
states?
Sean O'Dowd (07:43):
So we own homes right now in Wisconsin,
Illinois, and Indiana, and we'reactively looking in Minnesota
and Michigan as well. So thatthat's that's gonna be our bread
and butter. We we may expand toOhio, may expand to
Pennsylvania, but those thoseare our core 5 states that,
basically, Hugging and GreatLakes.
Trent Werner (08:04):
And and where are you located at? Where's your
company located at?
Sean O'Dowd (08:07):
We're we're in the Sheraton River Suburbs.
Trent Werner (08:09):
Okay. So you're familiar with with the area,
obviously. When it comes toidentifying these, upper end
school districts that aren't,you know, right by you, how are
you going about finding thesedifferent neighborhoods?
Sean O'Dowd (08:23):
There's there's a bunch of data. So we there's
some things that, like, we haveto use. So, like, GreatSchools,
for example, which is the onethat ranks schools out of 10,
like, integrates with Zillow. Wehave to look at that one because
that's we're renting homes onZillow, so it needs to be be
good there. But we found a bunchof other datasets.
For example, the one that's bestis we have a dataset that shows
(08:44):
what percent of the high schoolgraduating class goes to
Harvard, MIT, or Stanford. Andthat if you have a there's a
certain percentage threshold orif you have above a certain
percent of the graduating classgoing to those 3 schools, it
means, like, a lot of the kidsin that school district are
going to really great colleges,and that's a big driver of
rental value. So, I mean, mostof our tenants move in when
(09:06):
their eldest child is 14 becausethey're about to start high
school. The parents want thekids to go to good high schools.
They go to good college.
If the college list is matchingwhere like, what parents want
their kids to be going through,then there's a there's this much
more significant rental premiumbump that comes out from there.
Trent Werner (09:22):
Very interesting. Now let's talk about, you know,
obviously we've heard yourcriteria. We we know that you're
buying in good school districtswhen it comes to the ultimate
return of this property, firstquestion I have is how long is
your typical lease when you doacquire a new property and how
long second question is how longdoes it take to get leased out
(09:43):
after acquisition?
Sean O'Dowd (09:44):
Yeah. So our average lease right now is 27
months. So call it two and ahalf years. 2 years and change
is our standard lease. Regardingtime to lease, it's been
variable, But on average, itgoes pretty quickly.
Like, the the fastest we've everleased a home is literally an
hour where somebody reallywanted to live in school
district. We were the only gamein town. Like, they didn't even
(10:05):
see it. They're just like, Done,signed up $45100 a month. Great.
We've had some homes that take 6weeks or so because we've made a
mess we misjudged on whether ornot that was the right home for
us to buy, and, like, we made amistake in the underwriting. So
it's a big range on average.I'll have to pull the exact
number, but I would guess a weekto 2 weeks is our average
(10:27):
leasing time right now.
Trent Werner (10:28):
And then typically, you know, in a, I
guess, $45100 a month is apretty good rental rate,
especially in the Midwest. Ihear 45100, I think in New York,
Miami, and LA or San Francisco.How do you identify, I guess,
the rental rate that you'regonna be able to charge? Because
again, I I think of Midwest, andI don't think $45100 a month for
(10:50):
a 3 bedroom house. So how areyou able to to find those deals
that are gonna rent for $45100 amonth?
Sean O'Dowd (10:57):
That's the hardest that's the hardest challenge for
us and why the underwriting isis hard. And we we we aren't
batting a 1,000 on theunderwriting because you can't
use, like, a rentometer or arent cast in these areas because
those are looking at comps inthe area to get a new rental
estimate. If we're intentionallybuying areas that are 90 plus
percent owner occupied, meansthere are no rental comps in the
(11:18):
area. So it's really hard tokind of judge. What we have to
do is we have to, for lack ofbetter words, like, stretch the
existing comps that we do haveto get the most possible data
from them.
For example, if you go on Zillowand look at rental homes, you
can see the number of days thehomes went on the market, the
number of contacts per day, andthe number of application. The
(11:39):
number of contacts and number ofapplications. And we we have a,
a full time team member overseaswho is literally scraping that
data manually every day. Becausebecause we can look at it and be
like, okay, this home was listedat $35100. It's been on the
market 3 days.
It's had 75 people contact themand 12 applications. Like, that
home's probably under priced. Ifyou've got that many
(12:00):
applications and contacts in aday or 2. Or, like, inversely,
if it's been on the market for amonth and nobody's contacted,
like, this home's probablyoverpriced. So we're we're
collecting that data, and thatis a big part of our of our
rental rental underwriting priceprocess.
Trent Werner (12:16):
And do you guys have specific KPIs or or metrics
that you're tracking on, Iguess, target number of of views
and contacts and applicationsper day or per week?
Sean O'Dowd (12:27):
We do. We do have thresholds. They differ
depending on ZIP code becausesome ZIP codes are bigger than
others, where there's just morethere's more houses. So, we
would wanna see higher contactnumbers per day for a bigger ZIP
code versus a smaller one. But,like, a pretty good benchmark
is, like, you wanna be around 5.
Like, 5 contacts per day is,like, okay. There's there's
(12:47):
pretty significant demand. Andif you assume a funnel of, like,
5 people contact, 1 to 2 end upgoing on a tour, and then of the
people that tour, maybe 25 to30% submit an application that's
good enough to be accepted. Thenit's like, okay. We can kind of
back out a funnel of, like, whatwe need from a contacts
perspective to on a on a dailybasis over, say, 10 to 20 day
(13:09):
period to get the home basedstuff.
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And I know, like, in our markethere in the Portland metro area
in Oregon, we definitely haveand we have an in house property
management company.
So I'm I'm pretty familiar withthe daily views and contacts and
inquiries and all that stuff.For us, we have, you know, once
you get over $3 a month for ahouse, typically that lead flow
(14:29):
is going to drop. Do you find inyour markets where maybe if it's
under $4 a month or under 35100a month, you're seeing that or
what's where's your threshold atwhen it comes to price per month
on your rental rates?
Sean O'Dowd (14:43):
It's pretty different by zip code. Our
average right now, our averagerent is a touch under $36100 a
month. We've got some that arewell north of 4 grand, and we've
got some that are hoveringaround that 3 grand mark
depending on ZIP code. What thethe biggest driver for us has
been just the number of otherlistings in town. Like, once you
get above, like, 3 listings intown, it's it's harder to kind
(15:04):
of take price at at whatevernumber we want.
When we're the only game intown, it's a lot easier to to
push the push the price becausewe're we're the only rental
available at that point.
Trent Werner (15:14):
Yeah. That makes sense. Alright. Now back to this
this deal in Illinois,obviously, 3 bedroom rented for,
you said, $45100 a month?
Sean O'Dowd (15:23):
So this one was 35100. The 35100. 45100 was the
one that rented very quickly.
Trent Werner (15:27):
Okay. Okay.
Sean O'Dowd (15:28):
This is 35100. Yeah.
Trent Werner (15:30):
So $35100 a month, 2 and a or you said average 27
month, lease. Mhmm.
Sean O'Dowd (15:35):
What do
Trent Werner (15:36):
you remember what this lease started at?
Sean O'Dowd (15:38):
This one was a 3 year lease.
Trent Werner (15:40):
Okay. Do you have, like, annual rent increases
worked into your leases then?Okay.
Sean O'Dowd (15:46):
We do. We do have annual rent on the leases. This
one's, a $100 a month. What wefound is if you, if you do it
at, like, a $100 a month, Iwould say, like, okay. That
like, I can understand it.
If you try to do, like, 3%annual rent escalators, then the
numbers don't perfectly tie, andthe tenants are like, why is my
rent $3,612 or whatever it mightbe.
Trent Werner (16:05):
Yeah. Okay. And then in terms of management and
operating these deals, we'regonna use this one in particular
because we're talking about it.Mhmm. Do you have in house
property management for for yourportfolio?
Sean O'Dowd (16:18):
We use a third party property management
company.
Trent Werner (16:21):
And is your 3rd party management company
available in all the differentareas that you are currently in,
or do you have multipledifferent property managers?
Sean O'Dowd (16:29):
So they they are available in all the different
areas that we're in. They're,they're a national company.
Trent Werner (16:34):
Okay. Very nice. Also very easy for you guys.
Sean O'Dowd (16:37):
Makes it easy.
Trent Werner (16:38):
So talking about the metrics, $35100 a month, you
have a third party managementcompany. What does typical
maintenance and expenses looklike for your deals, in in the
single family portfolio that youhave?
Sean O'Dowd (16:53):
So we we have a matrix that we use, and we got
this from one of our advisors.But, on one axis of the matrix,
it has the decade that the homewas built, the vintage. And then
on the other axis of the matrix,it's got the square footage of,
the home. So we can say, hey.For 19 eighties, 2,000 square
foot home, we want we're gonnaexpect this.
For, 2010, a 1000 square foothome, we're gonna expect this
(17:16):
because it's just gonna be avery different maintenance
amount. On average right now forour portfolio, it's around $260
per home per month ofmaintenance is what we're
escrowing. But it works out tobe, a little over $3 a year per
home is for a 17,060 square foothome. That's about what we're
budgeting and what we're seeingacross historical spend.
Trent Werner (17:39):
Okay. And then for this Illinois deal, obviously,
you had to underwrite it. Whatwere you projecting in terms of
rental rates and, I guess,expense ratios or just, I guess,
overall NOI for this deal?
Sean O'Dowd (17:53):
So we we were underwriting around $35100 a
month on rent. So it ended uplanding about lower than what we
expected. Our agents thought wewere nuts because there's no
comps. So they're like, we thinkit's gonna be, like, 26100
because that was the only comp.We're like, no.
We think we're gonna get 35. Sounderwrite at 35. Expense ratio,
we had at 35% as well. It's 35to 35. And that's that's largely
(18:17):
tracked out to, where it's takenout to be.
Trent Werner (18:20):
Very nice. And so you bought this off the MLS. Did
you pay cash for it or was itfinanced?
Sean O'Dowd (18:26):
We did finance the home. We did, 35% down payment.
There's 353535, which makes itvery easy to remember. But it's
35% down payment, 65% LTV. Andwe we exclusively use 30 year
fixed debt.
A lot of other SFR funds try toget a little bit more creative
and get a little more aggressivein their debt, but we
(18:46):
exclusively use the 3rd yearfixed.
Trent Werner (18:48):
And what were you projecting the cash flow on a
monthly and annual basis forthis one?
Sean O'Dowd (18:53):
So for us, the the threshold for is, 6 and a half
unlevered yields and cost iswhat we what we're looking for.
But when we buy it, this oneended up being, a little bit
higher. We were we were atalmost double digits on levered
yield and cost for the 1st 2years. If you base it off of
actual expenses, we were stillescrowing for if you escrow for
(19:17):
actual, maintenance that hasn'thappened but will happen, it
was, mid 7s.
Trent Werner (19:22):
Okay. And is that pretty typical across your
portfolio?
Sean O'Dowd (19:25):
That's about right. Like, we we wanna shoot for that
6 and a half 11 year on cost isis the real kind of magic number
we're looking for. So this onewas a particularly good one, I
think driven by the fact thatthe maintenance incident rate
has been relatively low. But,that's exactly that number of,
like, 6a half is the kind of themagic number for us.
Trent Werner (19:44):
And then how long do you anticipate holding a deal
or I guess this deal? I'll askyou another question here in a
second.
Sean O'Dowd (19:51):
We're gonna hold it we're gonna hold it until we
sell everything as a portfolioif we do. We we we believe
strongly we'll get more valuefor the portfolio, the more
homes that are in it. So wedon't wanna sell homes one off
unless there's a situation wherelike a home burns down and we
decide to sell the lot offinstead of, rebuilding the
house.
Trent Werner (20:10):
And I get I guess that leads me to my other
question of being a fund model.You're able to do this because
you have all these differentassets that are owned by the
fund. And so your investors can,you know, get into the fund and
are immediately getting, Iguess, interest in the overall
fund. Correct?
Sean O'Dowd (20:29):
That's right. So if we have make the math easy.
Let's say it's a $10,000,000fund. The investor gives us a
$1,000,000. Like, they own 10%of the underlying fund.
So they get 10% of the cash flowfrom really from the jump. And
then we've got, we've got that$10,000,000 to then go out and
deploy and buy houses with.
Trent Werner (20:48):
And what is Scholastic Capital's overall
goal in terms of, I guess, fundsize or number of units? Do you
guys have goals? I'm assumingyou do.
Sean O'Dowd (20:57):
We do. So for because we wanna do that, we
wanna sell the portfolio downthe line. We really need to get
to a minimum of a 100 houses.That's the the threshold where
where somebody somebody seriouswould start taking a look at the
portfolio. At 250 homes, theywould be pretty interested.
And at 500 homes, they would be,like, very interested. So we we
(21:18):
need to get to at least 100. 250would be better. Like, 500 is is
best case scenario.
Trent Werner (21:25):
And you said you're buying on average 4 homes
a month right now?
Sean O'Dowd (21:29):
Yep. That's about right. And average home right
now is worth about 520 grand. So500 homes would be would be
about a $250,000,000 worth ofreal estate is, kind of the
ideal threshold to get up to.
Trent Werner (21:42):
So I'm gonna ask you this question because it's
kind of a hot topic for peoplelistening to this in the future.
We are recording this in Octoberof 2024. So just keep that in
mind. Home prices have been allover the news over the last, you
know, 3, 4, 5, 6 years goingthrough the roof. You know,
everything's more expensive.
Clearly this model is stillworking for you in your markets.
(22:04):
Why do you think you're able tocontinue to to run this model
when home prices across thecountry are up crazy amount
right now?
Sean O'Dowd (22:11):
It's it's a good question. The way that we think
about it is the way it works isaccessibility. So for the vast
majority of our tenants, they'reinterested in moving into the
ZIP code typically for highschool. And then once they're
out of the kids are out of thehouse, the parents are empty
nesters, parents move to Floridaor somewhere else. So for that
reason, if you're if you'relooking to move into one of
(22:34):
these really good schooldistricts for 4 years or 6 years
for multiple kids and yourchoices are pay $36100 a month
in rent or buy a house for a$1,000,000, jumbo loan, $250
down payment at a minimum, plusyou're gonna have transaction
costs when you try to sell it 4or 6 years later, you're
probably gonna lose money.
(22:55):
Like, in most cases, the rentingmakes more sense for just about
everybody to do. And Our our twomost common jobs out of our
tenants are software engineerand doctoring. So they're doing
the math. They're they're smartfolks. They're looking at it and
be like, hey.
If I if I have those choices,like, renting is the smarter
choice for me to do. As long asthat buy versus rent math
continues to hold, like weshould theoretically be well
(23:17):
positioned for those tenants whoare here for a short period of
time, but a short but kind ofdefined period of time.
Trent Werner (23:25):
And have your yield to cost numbers been
squeezed at all with rates beingwhere they're at? Or are you, I
guess, buying rates down ordoing anything in addition to
just conditional or or nornormal financing to make numbers
work, or are you just leavingthem how they are?
Sean O'Dowd (23:43):
We're because we're we're buying enough, we have,
for lack of words, like,negotiated better terms with
lenders because they're they'regetting a lot of a lot of work
from us. So the our average ourweighted average interest rate
right now in the portfolio is615. And, that's the average 30
year fixed rate in house about 7and change. 7.02 is what I saw
(24:03):
the the print was this morning.So we are we are getting much
better rates just because we'rewe're buying buying bulk.
Trent Werner (24:10):
Okay. So if you, you know, let's say because a
lot of people are talking in2026, you know, rates should be
in the mid fives. Is there anyany, I guess, scenario where you
would go look at doing a bulkrefinance and getting more cash
into that the fund?
Sean O'Dowd (24:28):
There is. We we absolutely would do that if
rates make sense to do. Thechallenge is we we've seen some
other funds that have, like,promised their investors, like,
we're gonna do this. We'redefinitely gonna refinance, and,
like, we don't wanna make thatpromise because we don't it's
kind of out of our control andif rates do get to that point.
But if they do, we're absolutelygonna try to do that just to
(24:50):
refresh lower rates and see ifwe can bring some money out
either to then give it back toour investors or go buy more
homes away.
Trent Werner (24:56):
Yep. And what's as an investor in your fund, what
are they looking at? What arethe the returns that they're
able to achieve?
Sean O'Dowd (25:04):
Yep. So our our total forecasted return is 15.1%
IRR, and we they get there via,the distribution. So we send out
distributions monthly on thecash flow and then the investor
also owns the underlying equity.So as we pay off the mortgage,
as the homes appreciate, if wewhereas we sell them down the
line, like, they'll get theirtheir equity as well.
Trent Werner (25:26):
And is there a preferred return at all?
Sean O'Dowd (25:28):
There is. So we have an 8% preferred return. So
investors get 100% of everythinguntil they've made 8% of their
money. And then after the 8%,it's a 80 20 split. So they get
80¢ on the dollar, and we get20¢ on the dollar.
Trent Werner (25:41):
Very nice. And then last question I have, just
because I'm curious and wannaknow more about your your
business here. What is what isthe new what are the new homes
that you're buying looking like?Are they drastically different
in terms of metrics from thehouse that we talked about in
Illinois from 2 years ago? Is itmore of the same?
What is your current additionsand acquisitions look like right
(26:03):
now?
Sean O'Dowd (26:04):
They're roughly the same. We've made one change over
the past week or so that we'renow actually screening for is, a
fence in the backyard. It's thenumber one most requested thing
that we get. It's like, hey.Everybody got a dog during
COVID.
I need a fence for the house. Idon't wanna let, walk the dog
outside in the Chicago andWisconsin winters. So that's
(26:26):
been the big change actually iswe're now we prefer homes with
fences or if it doesn't have afence, we add on, like, $3 in
our budget assuming that we'regonna have to put a fence on the
house. Outside of that,acquisitions are largely
similar. We're just gettingbetter at them.
Like, we collect a lot of data.I've got the serial number of
every fridge. I've got serialnumber of every water heater
across all of it. Like, we weneed to collect that data to get
(26:48):
smart about our forecasting andour budgeting. So we're getting
better at the acquisitionprocess, but it is it is more of
the same.
Trent Werner (26:55):
Very nice. And Sean, where can people hear more
from you or connect with you?
Sean O'Dowd (27:00):
So we our our website is
www.scholasticcapital.com Andthen I I'm pretty active on
Twitter. I share like a kind ofa a running daily monologue of,
like, what what we're thinkingabout, what we're doing, what
we're seeing. So at Sean O'Dot15. I'm the 15th Irish guy, I
know Sean family.
But I'm Sean O'Dot 15 onTwitter.
Trent Werner (27:18):
Very nice. We'll make sure those are all linked
below. Sean, thank you so muchfor sharing about Scholastic
Capital, your single familyinvestment portfolio, and I
don't think we've ever heardsomeone focus specifically on
high end school districts as afund model. So that was very
cool to hear.
Sean O'Dowd (27:35):
Well, I appreciate it. Thanks so much for having
me.
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Trent Werner (00:40):
Welcome back to another episode of the Deal Deep
Dive segment on the WestsideInvestors Network podcast. I'm
your host, Trent Werner. In thissegment, our featured guests
will share their unique storieson a specific deal they've
invested in. We will dive deepinto finding the deal, financing
the deal, writing an offer, andthe due diligence. Do us a solid
and smash that subscribe button,leave us a rating, and share
(01:03):
this episode.
And now, let's dive deep.Welcome back to the Westside
Investors Network podcast. I'myour host, Trent Werner. Today,
we are joined by Sean O'Dowd ofScholastic Capital. Sean's gonna
share his story investing insingle family real estate with
his now wife and turning thatidea and concept into a full on
(01:24):
fund with a partner atScholastic Capital.
Their model consists of buyingsingle family homes in high
level school districts andrenting them on longer term
leases. Now let's welcome SeanO'Dowd. Alright. We got Sean
O'Dowd with Scholastic Capitaljoining the Westside Investors
Network podcast today. Sean,thanks for taking the time to
(01:45):
talk with us.
Sean O'Dowd (01:47):
Thanks for having me. I'm excited for this.
Trent Werner (01:49):
So Sean has a very interesting business model,
which we will hear more aboutlater on in our conversation.
Scholastic Capital, his company,buys single family houses in
great school districts and rentsthem out long term. Again, we
will get more into the detailson that here shortly, but I
wanna hear about Sean O'Dowd.And did you start off in real
(02:10):
estate straight out of college?Did you have a different career
that led you to real estate?
Who is Sean O'Dowd?
Sean O'Dowd (02:15):
Yeah. So I, I did have a different career when I
got out of college, althoughreal estate was kind of a a when
not if situation. So I I moved22 times before I went to
college. So that was my, like,initial exposure to real estate.
It was, oh, like, finding a newplace to live is this super fun
thing that my family was doingevery, like, 8, 9 months.
So I got super into it, andsuper interested in real estate
(02:39):
because of that. But right outof school, I, I went to, like, a
business school for for schoolfor college, and I worked for a
consulting firm right out ofschool, before getting back into
real estate.
Trent Werner (02:50):
And how long did you do consulting before getting
back into real estate?
Sean O'Dowd (02:54):
I was with a big firm for 2 years and then I was
independent for about two and ahalf years. So I was doing the
consulting for about 4, 5 years,although I was buying real
estate on the side with themoney I was making from my job.
Trent Werner (03:10):
Very nice. And a lot of people, you might be in
the same boat, but they startbuying real estate while they're
working. And typically, they'rebuying single family homes or
small multifamily. What were youadding to your portfolio during
that time?
Sean O'Dowd (03:22):
So I I did 2 different things. My I was
buying them with my now wife,actually. We bought our first
property together before we wereengaged, which probably was not
the smartest thing in the worldin case it didn't work out, but
we did do that together. Webought 2 small multifamilies,
and then we bought 3 singlefamily houses, 2 very different
strategies. And the the goal wasto kind of test and drive both
(03:44):
of them, and we, really didn'tlike the multifamily strategy.
We ended up with, like, thesingle family strategy.
Trent Werner (03:50):
Very nice. And tell me a little bit more about
Scholastic Capital. What isScholastic, and where does well,
1, where does the name comefrom? Because I'm curious. And
2, what do you guys focus on?
Sean O'Dowd (04:02):
Yeah. So the name comes from, my partner actually
came up with a name, And,gentleman named Michael, he's in
the GP with me. And he came upwith the name. And the reason
why it's Scholastic capital iswe're intentionally buying homes
only in a really high end schooldistrict areas. There's a bunch
of reasons why, but it's it's areally cool part to our thesis
is we only buy in those specificneighborhoods.
(04:25):
And for that reason, we wefigured we might as well go with
the Scholastic Capital name forthe the school district type.
Trent Werner (04:30):
I love it. And how many deals do you guys have, in
your current portfolio?
Sean O'Dowd (04:35):
We've got 21 homes. It's about 11 and a half
$1,000,000 worth of real estateworth, and we're we're buying
about 4 to 5 homes a month rightnow. So we we we we just started
buying under the fund modelabout 4 or 5, 6 months ago, and
we're we're scaling up prettyquickly.
Trent Werner (04:52):
Very nice. So today, the deal that we're gonna
focus on is one from a coupleyears ago. I do wanna touch on
some of your more recent stuffhere in a little bit. But you
mentioned that you had a dealfrom a couple years ago that you
purchased with this idea andthis concept and this model,
located in Illinois. Tell meabout this one.
Sean O'Dowd (05:13):
Yep. So this was one of the first deals that my
wife and I personally bought tokinda test this thesis. It's now
part of the fund. So this deal,it's a single family home and a
really high end school districtin Illinois. We bought it for
$440,000, 3 bed, 3 bath, 1900square feet.
Trent Werner (05:32):
Very nice. And how did you purchase this deal?
Sean O'Dowd (05:35):
So this was MLS. So we we bought it off the MLS
because we only buy in reallygood school districts and
because we're buying homes withthe intention of trying to sell
them to a larger institutiondown the line. There's not a lot
of neighborhoods we can buy in,and there's not there's a lot of
very specific things that we'relooking for in each house, which
means when we see something onthe market and it actually
(05:55):
passes all the filters, we wetend to know immediately. So
this home hit the MLS and, I wasin the living room like 30
minutes later. We were undercontract probably 2, 3 hours
after that.
Trent Werner (06:07):
And what is your criteria other than high end
school districts?
Sean O'Dowd (06:12):
So within within the, like, where we wanna buy,
there's there's a bunch ofdifferent things, but at its
core, it's like we want reallybig school districts. That's our
demand drivers. There's a bunchof data still when we're doing
that. On the supply side, we'reonly buying homes in areas where
the owner occupancy rate is 80,80 5, 90% or higher. In the
country, it's around 60, 65%.
(06:34):
And we're doing thatintentionally because then we're
gonna be sitting in a supplydemand imbalance. A lot of
people wanna get in there. Not alot of rentals available. We're
the only game in town. If youwant the good school district,
we can take a take a higherprice premium as a result.
And then we're only buying inthe upper Midwest because we we
think that's gonna have the bestchance of institutional exit.
That's on the where we're buyingon the home specific side of
(06:56):
things. We've got, like, 17, 18different criteria that we're
looking for. Gotta be at least 3bedrooms, gotta be at least 1
and a half bath, smaller than3,000 square feet, above a 1000
square feet, the kind ofstandard ones. On top of that
speed limit, it's gotta be on aspeed the speed limit is 25
miles an hour or less.
Can't have solar panels on thehouse, no pools at the house,
(07:17):
things like that, that we needto keep in mind because if we we
broke we break those rules, wewon't be able sell that home to
a larger institution down theline.
Trent Werner (07:25):
Very interesting. I didn't I didn't know that. So,
I mean, clearly, you guys havethought about the criteria and,
have found, you know, plenty ofof deals within that criteria.
You said that you only focus onthe upper Midwest. Are you in
Illinois only, or are you in allthe different upper Midwest
states?
Sean O'Dowd (07:43):
So we own homes right now in Wisconsin,
Illinois, and Indiana, and we'reactively looking in Minnesota
and Michigan as well. So thatthat's that's gonna be our bread
and butter. We we may expand toOhio, may expand to
Pennsylvania, but those thoseare our core 5 states that,
basically, Hugging and GreatLakes.
Trent Werner (08:04):
And and where are you located at? Where's your
company located at?
Sean O'Dowd (08:07):
We're we're in the Sheraton River Suburbs.
Trent Werner (08:09):
Okay. So you're familiar with with the area,
obviously. When it comes toidentifying these, upper end
school districts that aren't,you know, right by you, how are
you going about finding thesedifferent neighborhoods?
Sean O'Dowd (08:23):
There's there's a bunch of data. So we there's
some things that, like, we haveto use. So, like, GreatSchools,
for example, which is the onethat ranks schools out of 10,
like, integrates with Zillow. Wehave to look at that one because
that's we're renting homes onZillow, so it needs to be be
good there. But we found a bunchof other datasets.
For example, the one that's bestis we have a dataset that shows
(08:44):
what percent of the high schoolgraduating class goes to
Harvard, MIT, or Stanford. Andthat if you have a there's a
certain percentage threshold orif you have above a certain
percent of the graduating classgoing to those 3 schools, it
means, like, a lot of the kidsin that school district are
going to really great colleges,and that's a big driver of
rental value. So, I mean, mostof our tenants move in when
(09:06):
their eldest child is 14 becausethey're about to start high
school. The parents want thekids to go to good high schools.
They go to good college.
If the college list is matchingwhere like, what parents want
their kids to be going through,then there's a there's this much
more significant rental premiumbump that comes out from there.
Trent Werner (09:22):
Very interesting. Now let's talk about, you know,
obviously we've heard yourcriteria. We we know that you're
buying in good school districtswhen it comes to the ultimate
return of this property, firstquestion I have is how long is
your typical lease when you doacquire a new property and how
long second question is how longdoes it take to get leased out
(09:43):
after acquisition?
Sean O'Dowd (09:44):
Yeah. So our average lease right now is 27
months. So call it two and ahalf years. 2 years and change
is our standard lease. Regardingtime to lease, it's been
variable, But on average, itgoes pretty quickly.
Like, the the fastest we've everleased a home is literally an
hour where somebody reallywanted to live in school
district. We were the only gamein town. Like, they didn't even
(10:05):
see it. They're just like, Done,signed up $45100 a month. Great.
We've had some homes that take 6weeks or so because we've made a
mess we misjudged on whether ornot that was the right home for
us to buy, and, like, we made amistake in the underwriting. So
it's a big range on average.I'll have to pull the exact
number, but I would guess a weekto 2 weeks is our average
(10:27):
leasing time right now.
Trent Werner (10:28):
And then typically, you know, in a, I
guess, $45100 a month is apretty good rental rate,
especially in the Midwest. Ihear 45100, I think in New York,
Miami, and LA or San Francisco.How do you identify, I guess,
the rental rate that you'regonna be able to charge? Because
again, I I think of Midwest, andI don't think $45100 a month for
(10:50):
a 3 bedroom house. So how areyou able to to find those deals
that are gonna rent for $45100 amonth?
Sean O'Dowd (10:57):
That's the hardest that's the hardest challenge for
us and why the underwriting isis hard. And we we we aren't
batting a 1,000 on theunderwriting because you can't
use, like, a rentometer or arent cast in these areas because
those are looking at comps inthe area to get a new rental
estimate. If we're intentionallybuying areas that are 90 plus
percent owner occupied, meansthere are no rental comps in the
(11:18):
area. So it's really hard tokind of judge. What we have to
do is we have to, for lack ofbetter words, like, stretch the
existing comps that we do haveto get the most possible data
from them.
For example, if you go on Zillowand look at rental homes, you
can see the number of days thehomes went on the market, the
number of contacts per day, andthe number of application. The
(11:39):
number of contacts and number ofapplications. And we we have a,
a full time team member overseaswho is literally scraping that
data manually every day. Becausebecause we can look at it and be
like, okay, this home was listedat $35100. It's been on the
market 3 days.
It's had 75 people contact themand 12 applications. Like, that
home's probably under priced. Ifyou've got that many
(12:00):
applications and contacts in aday or 2. Or, like, inversely,
if it's been on the market for amonth and nobody's contacted,
like, this home's probablyoverpriced. So we're we're
collecting that data, and thatis a big part of our of our
rental rental underwriting priceprocess.
Trent Werner (12:16):
And do you guys have specific KPIs or or metrics
that you're tracking on, Iguess, target number of of views
and contacts and applicationsper day or per week?
Sean O'Dowd (12:27):
We do. We do have thresholds. They differ
depending on ZIP code becausesome ZIP codes are bigger than
others, where there's just morethere's more houses. So, we
would wanna see higher contactnumbers per day for a bigger ZIP
code versus a smaller one. But,like, a pretty good benchmark
is, like, you wanna be around 5.
Like, 5 contacts per day is,like, okay. There's there's
(12:47):
pretty significant demand. Andif you assume a funnel of, like,
5 people contact, 1 to 2 end upgoing on a tour, and then of the
people that tour, maybe 25 to30% submit an application that's
good enough to be accepted. Thenit's like, okay. We can kind of
back out a funnel of, like, whatwe need from a contacts
perspective to on a on a dailybasis over, say, 10 to 20 day
(13:09):
period to get the home basedstuff.
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And I know, like, in our markethere in the Portland metro area
in Oregon, we definitely haveand we have an in house property
management company.
So I'm I'm pretty familiar withthe daily views and contacts and
inquiries and all that stuff.For us, we have, you know, once
you get over $3 a month for ahouse, typically that lead flow
(14:29):
is going to drop. Do you find inyour markets where maybe if it's
under $4 a month or under 35100a month, you're seeing that or
what's where's your threshold atwhen it comes to price per month
on your rental rates?
Sean O'Dowd (14:43):
It's pretty different by zip code. Our
average right now, our averagerent is a touch under $36100 a
month. We've got some that arewell north of 4 grand, and we've
got some that are hoveringaround that 3 grand mark
depending on ZIP code. What thethe biggest driver for us has
been just the number of otherlistings in town. Like, once you
get above, like, 3 listings intown, it's it's harder to kind
(15:04):
of take price at at whatevernumber we want.
When we're the only game intown, it's a lot easier to to
push the push the price becausewe're we're the only rental
available at that point.
Trent Werner (15:14):
Yeah. That makes sense. Alright. Now back to this
this deal in Illinois,obviously, 3 bedroom rented for,
you said, $45100 a month?
Sean O'Dowd (15:23):
So this one was 35100. The 35100. 45100 was the
one that rented very quickly.
Trent Werner (15:27):
Okay. Okay.
Sean O'Dowd (15:28):
This is 35100. Yeah.
Trent Werner (15:30):
So $35100 a month, 2 and a or you said average 27
month, lease. Mhmm.
Sean O'Dowd (15:35):
What do
Trent Werner (15:36):
you remember what this lease started at?
Sean O'Dowd (15:38):
This one was a 3 year lease.
Trent Werner (15:40):
Okay. Do you have, like, annual rent increases
worked into your leases then?Okay.
Sean O'Dowd (15:46):
We do. We do have annual rent on the leases. This
one's, a $100 a month. What wefound is if you, if you do it
at, like, a $100 a month, Iwould say, like, okay. That
like, I can understand it.
If you try to do, like, 3%annual rent escalators, then the
numbers don't perfectly tie, andthe tenants are like, why is my
rent $3,612 or whatever it mightbe.
Trent Werner (16:05):
Yeah. Okay. And then in terms of management and
operating these deals, we'regonna use this one in particular
because we're talking about it.Mhmm. Do you have in house
property management for for yourportfolio?
Sean O'Dowd (16:18):
We use a third party property management
company.
Trent Werner (16:21):
And is your 3rd party management company
available in all the differentareas that you are currently in,
or do you have multipledifferent property managers?
Sean O'Dowd (16:29):
So they they are available in all the different
areas that we're in. They're,they're a national company.
Trent Werner (16:34):
Okay. Very nice. Also very easy for you guys.
Sean O'Dowd (16:37):
Makes it easy.
Trent Werner (16:38):
So talking about the metrics, $35100 a month, you
have a third party managementcompany. What does typical
maintenance and expenses looklike for your deals, in in the
single family portfolio that youhave?
Sean O'Dowd (16:53):
So we we have a matrix that we use, and we got
this from one of our advisors.But, on one axis of the matrix,
it has the decade that the homewas built, the vintage. And then
on the other axis of the matrix,it's got the square footage of,
the home. So we can say, hey.For 19 eighties, 2,000 square
foot home, we want we're gonnaexpect this.
For, 2010, a 1000 square foothome, we're gonna expect this
(17:16):
because it's just gonna be avery different maintenance
amount. On average right now forour portfolio, it's around $260
per home per month ofmaintenance is what we're
escrowing. But it works out tobe, a little over $3 a year per
home is for a 17,060 square foothome. That's about what we're
budgeting and what we're seeingacross historical spend.
Trent Werner (17:39):
Okay. And then for this Illinois deal, obviously,
you had to underwrite it. Whatwere you projecting in terms of
rental rates and, I guess,expense ratios or just, I guess,
overall NOI for this deal?
Sean O'Dowd (17:53):
So we we were underwriting around $35100 a
month on rent. So it ended uplanding about lower than what we
expected. Our agents thought wewere nuts because there's no
comps. So they're like, we thinkit's gonna be, like, 26100
because that was the only comp.We're like, no.
We think we're gonna get 35. Sounderwrite at 35. Expense ratio,
we had at 35% as well. It's 35to 35. And that's that's largely
(18:17):
tracked out to, where it's takenout to be.
Trent Werner (18:20):
Very nice. And so you bought this off the MLS. Did
you pay cash for it or was itfinanced?
Sean O'Dowd (18:26):
We did finance the home. We did, 35% down payment.
There's 353535, which makes itvery easy to remember. But it's
35% down payment, 65% LTV. Andwe we exclusively use 30 year
fixed debt.
A lot of other SFR funds try toget a little bit more creative
and get a little more aggressivein their debt, but we
(18:46):
exclusively use the 3rd yearfixed.
Trent Werner (18:48):
And what were you projecting the cash flow on a
monthly and annual basis forthis one?
Sean O'Dowd (18:53):
So for us, the the threshold for is, 6 and a half
unlevered yields and cost iswhat we what we're looking for.
But when we buy it, this oneended up being, a little bit
higher. We were we were atalmost double digits on levered
yield and cost for the 1st 2years. If you base it off of
actual expenses, we were stillescrowing for if you escrow for
(19:17):
actual, maintenance that hasn'thappened but will happen, it
was, mid 7s.
Trent Werner (19:22):
Okay. And is that pretty typical across your
portfolio?
Sean O'Dowd (19:25):
That's about right. Like, we we wanna shoot for that
6 and a half 11 year on cost isis the real kind of magic number
we're looking for. So this onewas a particularly good one, I
think driven by the fact thatthe maintenance incident rate
has been relatively low. But,that's exactly that number of,
like, 6a half is the kind of themagic number for us.
Trent Werner (19:44):
And then how long do you anticipate holding a deal
or I guess this deal? I'll askyou another question here in a
second.
Sean O'Dowd (19:51):
We're gonna hold it we're gonna hold it until we
sell everything as a portfolioif we do. We we we believe
strongly we'll get more valuefor the portfolio, the more
homes that are in it. So wedon't wanna sell homes one off
unless there's a situation wherelike a home burns down and we
decide to sell the lot offinstead of, rebuilding the
house.
Trent Werner (20:10):
And I get I guess that leads me to my other
question of being a fund model.You're able to do this because
you have all these differentassets that are owned by the
fund. And so your investors can,you know, get into the fund and
are immediately getting, Iguess, interest in the overall
fund. Correct?
Sean O'Dowd (20:29):
That's right. So if we have make the math easy.
Let's say it's a $10,000,000fund. The investor gives us a
$1,000,000. Like, they own 10%of the underlying fund.
So they get 10% of the cash flowfrom really from the jump. And
then we've got, we've got that$10,000,000 to then go out and
deploy and buy houses with.
Trent Werner (20:48):
And what is Scholastic Capital's overall
goal in terms of, I guess, fundsize or number of units? Do you
guys have goals? I'm assumingyou do.
Sean O'Dowd (20:57):
We do. So for because we wanna do that, we
wanna sell the portfolio downthe line. We really need to get
to a minimum of a 100 houses.That's the the threshold where
where somebody somebody seriouswould start taking a look at the
portfolio. At 250 homes, theywould be pretty interested.
And at 500 homes, they would be,like, very interested. So we we
(21:18):
need to get to at least 100. 250would be better. Like, 500 is is
best case scenario.
Trent Werner (21:25):
And you said you're buying on average 4 homes
a month right now?
Sean O'Dowd (21:29):
Yep. That's about right. And average home right
now is worth about 520 grand. So500 homes would be would be
about a $250,000,000 worth ofreal estate is, kind of the
ideal threshold to get up to.
Trent Werner (21:42):
So I'm gonna ask you this question because it's
kind of a hot topic for peoplelistening to this in the future.
We are recording this in Octoberof 2024. So just keep that in
mind. Home prices have been allover the news over the last, you
know, 3, 4, 5, 6 years goingthrough the roof. You know,
everything's more expensive.
Clearly this model is stillworking for you in your markets.
(22:04):
Why do you think you're able tocontinue to to run this model
when home prices across thecountry are up crazy amount
right now?
Sean O'Dowd (22:11):
It's it's a good question. The way that we think
about it is the way it works isaccessibility. So for the vast
majority of our tenants, they'reinterested in moving into the
ZIP code typically for highschool. And then once they're
out of the kids are out of thehouse, the parents are empty
nesters, parents move to Floridaor somewhere else. So for that
reason, if you're if you'relooking to move into one of
(22:34):
these really good schooldistricts for 4 years or 6 years
for multiple kids and yourchoices are pay $36100 a month
in rent or buy a house for a$1,000,000, jumbo loan, $250
down payment at a minimum, plusyou're gonna have transaction
costs when you try to sell it 4or 6 years later, you're
probably gonna lose money.
(22:55):
Like, in most cases, the rentingmakes more sense for just about
everybody to do. And Our our twomost common jobs out of our
tenants are software engineerand doctoring. So they're doing
the math. They're they're smartfolks. They're looking at it and
be like, hey.
If I if I have those choices,like, renting is the smarter
choice for me to do. As long asthat buy versus rent math
continues to hold, like weshould theoretically be well
(23:17):
positioned for those tenants whoare here for a short period of
time, but a short but kind ofdefined period of time.
Trent Werner (23:25):
And have your yield to cost numbers been
squeezed at all with rates beingwhere they're at? Or are you, I
guess, buying rates down ordoing anything in addition to
just conditional or or nornormal financing to make numbers
work, or are you just leavingthem how they are?
Sean O'Dowd (23:43):
We're because we're we're buying enough, we have,
for lack of words, like,negotiated better terms with
lenders because they're they'regetting a lot of a lot of work
from us. So the our average ourweighted average interest rate
right now in the portfolio is615. And, that's the average 30
year fixed rate in house about 7and change. 7.02 is what I saw
(24:03):
the the print was this morning.So we are we are getting much
better rates just because we'rewe're buying buying bulk.
Trent Werner (24:10):
Okay. So if you, you know, let's say because a
lot of people are talking in2026, you know, rates should be
in the mid fives. Is there anyany, I guess, scenario where you
would go look at doing a bulkrefinance and getting more cash
into that the fund?
Sean O'Dowd (24:28):
There is. We we absolutely would do that if
rates make sense to do. Thechallenge is we we've seen some
other funds that have, like,promised their investors, like,
we're gonna do this. We'redefinitely gonna refinance, and,
like, we don't wanna make thatpromise because we don't it's
kind of out of our control andif rates do get to that point.
But if they do, we're absolutelygonna try to do that just to
(24:50):
refresh lower rates and see ifwe can bring some money out
either to then give it back toour investors or go buy more
homes away.
Trent Werner (24:56):
Yep. And what's as an investor in your fund, what
are they looking at? What arethe the returns that they're
able to achieve?
Sean O'Dowd (25:04):
Yep. So our our total forecasted return is 15.1%
IRR, and we they get there via,the distribution. So we send out
distributions monthly on thecash flow and then the investor
also owns the underlying equity.So as we pay off the mortgage,
as the homes appreciate, if wewhereas we sell them down the
line, like, they'll get theirtheir equity as well.
Trent Werner (25:26):
And is there a preferred return at all?
Sean O'Dowd (25:28):
There is. So we have an 8% preferred return. So
investors get 100% of everythinguntil they've made 8% of their
money. And then after the 8%,it's a 80 20 split. So they get
80¢ on the dollar, and we get20¢ on the dollar.
Trent Werner (25:41):
Very nice. And then last question I have, just
because I'm curious and wannaknow more about your your
business here. What is what isthe new what are the new homes
that you're buying looking like?Are they drastically different
in terms of metrics from thehouse that we talked about in
Illinois from 2 years ago? Is itmore of the same?
What is your current additionsand acquisitions look like right
(26:03):
now?
Sean O'Dowd (26:04):
They're roughly the same. We've made one change over
the past week or so that we'renow actually screening for is, a
fence in the backyard. It's thenumber one most requested thing
that we get. It's like, hey.Everybody got a dog during
COVID.
I need a fence for the house. Idon't wanna let, walk the dog
outside in the Chicago andWisconsin winters. So that's
(26:26):
been the big change actually iswe're now we prefer homes with
fences or if it doesn't have afence, we add on, like, $3 in
our budget assuming that we'regonna have to put a fence on the
house. Outside of that,acquisitions are largely
similar. We're just gettingbetter at them.
Like, we collect a lot of data.I've got the serial number of
every fridge. I've got serialnumber of every water heater
across all of it. Like, we weneed to collect that data to get
(26:48):
smart about our forecasting andour budgeting. So we're getting
better at the acquisitionprocess, but it is it is more of
the same.
Trent Werner (26:55):
Very nice. And Sean, where can people hear more
from you or connect with you?
Sean O'Dowd (27:00):
So we our our website is
www.scholasticcapital.com Andthen I I'm pretty active on
Twitter. I share like a kind ofa a running daily monologue of,
like, what what we're thinkingabout, what we're doing, what
we're seeing. So at Sean O'Dot15. I'm the 15th Irish guy, I
know Sean family.
But I'm Sean O'Dot 15 onTwitter.
Trent Werner (27:18):
Very nice. We'll make sure those are all linked
below. Sean, thank you so muchfor sharing about Scholastic
Capital, your single familyinvestment portfolio, and I
don't think we've ever heardsomeone focus specifically on
high end school districts as afund model. So that was very
cool to hear.
Sean O'Dowd (27:35):
Well, I appreciate it. Thanks so much for having
me.
Intro speaker (27:38):
Thank you for listening to this episode of the
Real Estate ProfessionalsInvesting podcast on Wynn, your
community of investing knowledgefor growth. We hope that this
episode has increased yourknowledge and added value to
your path to freedom. If youwould, please take a second to
rate us so that we can get moregreat investors to interview. If
you or someone that you knowwants to be on, please visit
(27:58):
westsideinvestors.com and fillout our form to be on the show.
Thank you again, and enjoy yourday.
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