- A Chicago-based real estate investor behind the Scholastic Capital fund has purchased 250 homes in Midwest zip codes with the best schools to rent
- Lower costs in the Midwest and high demand for top schools make such an approach feasible and create more affordable rental options in upscale areas
- Real estate agents are restricted by fair housing laws from explicitly promoting the educational quality of school districts, but rental properties are not subject to the same laws
A Chicago real estate investor plans to buy 250 homes in 21 different zip codes across the Midwest, with the intention of renting them to families who want to live near the best schools but can’t afford to buy a million-dollar mansion.
Fair housing laws specifically restrict real estate agents from explicitly bragging about the quality of school districts when selling homes — but there is a way to get around the rules by renting.
Sean O’Dowd has now devised a strategic investment plan with his Scholastic Capital fund, which will buy the single-family homes in areas with the top-performing schools and then offer them as rental properties.
The investor-backed single-family rental model could potentially provide more affordable housing options in upscale cities, allowing middle- and upper-middle-class families and those without the money for substantial down payments to access elite school districts by renting rather than buying.
The program allows families to escape six-figure down payments, while many families don’t have that much cash, but they can afford a high monthly rent.
A Chicago real estate investor plans to buy 250 homes in 21 different zip codes across the Midwest, intending to rent them to families who want to live in the best neighborhoods for schools but can’t afford to buy.
Sean O’Dowd has now devised a strategic investment plan with his Scholastic Capital fund, which will buy the single-family homes in areas with the top-performing schools and then offer them as rental properties.
For example, a million-dollar home would require a 25 percent ($250,000) down payment.
Many middle- and upper-middle-class families don’t have that kind of money lying around, even if they make $200,000 a year in salary — still $3,500 a month for rent would be enough.
The Scholastic Capital fund focuses on the Midwest because of its lower real estate values – but there is still significant demand for rental properties – compared to prices on the coasts
For now, the fund is focusing entirely on the Midwest. If the model performs well, there is potential for rollout in other regions in expensive real estate markets, including the New York suburbs and parts of California, Florida and Texas.
“It works here: there’s a customer looking for these types of products in the Midwest,” O’Dowd told Restrained.
Such a strategy runs counter to institutional investors who typically focus on lower-priced neighborhoods and ultimately outpace first-time homebuyer prices.
The Scholastic Capital The fund decided to focus on the Midwest because of its lower property values – but there is still significant demand for rental properties – compared to prices on the coasts.
‘People make a comparison between buying and renting and see it as: ‘I will stay in this area for four years, then my child will move out.’ That’s all I need it for,” O’Dowd said.
The investor-backed single-family rental model could potentially provide more affordable housing options in upscale cities, allowing middle- and upper-middle-class families and those without the money for substantial down payments to access elite school districts by renting rather than buying
To date, the fund has purchased four homes.
O’Dowd’s fund also buys the homes in the late spring and summer, to coincide with the time when families typically move before the next school year.
Such timing also minimizes the cost of keeping properties vacant, where property taxes can reach $20,000 a year in upscale suburbs with top schools.
O’Dowd says his fund specifically targets homes with at least three bedrooms, 1.5 bathrooms, quiet residential streets with speed limits of less than 25 miles per hour – close to prestigious schools.
‘One of the tenants literally burst into tears. It was one of the few rental properties she had seen in the past 18 months because they are never available in that community and she really wanted to send her children to that school,” O’Dowd said.
He says that in addition to checking the statistics when it comes to the best schools, he also gauges the opinions of locals by spending time in nearby parks and playgrounds to determine public perception of a particular area.