Moses Kagan, a real estate investor, posted on X: "If I had my life to do over again, I would live in a suburb with really good public schools. Very tough to build wealth as an entrepreneur while pulling money out of your business and paying taxes on it to pay for private school tuition for multiple kids."

It's a reasonable observation about a real trade-off that millions of families face. Good public schools are expensive to access, either through housing costs in desirable districts or through private tuition that can run $30,000 per child per year. Most families can't afford both wealth-building and elite education, so they choose.

Then Sean O'Dowd, founder of Scholastic Capital, quote-tweeted: "Quite literally the business model I've dedicated my career too. There are so many families that want access to the best public schools. There are so few housing options in those school districts. Rental homes in elite school districts just makes sense."

His firm's website is more explicit about the strategy: "Scholastic Capital acquires & rents single family homes in elite school districts. Only 1-3 zip codes per state fit our criteria of elite school districts. Only 1% of homes for sale in those districts pass our underwriting. The strategy is designed to be a core defensive, durable real estate allocation that can preserve capital in a variety of market environments."

The Business Model

The strategy is straightforward: identify the 1-3 zip codes in each state with the best public schools, buy single-family homes in those districts, and rent them to families who want access to those schools but can't afford to buy. The pitch to investors describes it as "a core defensive, durable real estate allocation that can preserve capital in a variety of market environments," which is consultant-speak for: families will pay almost anything to get their kids into good schools, demand is inelastic, the moat is zoning laws that restrict new housing supply, and returns are stable because the constraint is structural.

It's a rational investment thesis built on a foundation of scarcity that the investors have no incentive to solve. That's the problem.

Why This Works

Elite school districts are elite partly because they restrict housing supply through zoning: low density, large lot minimums, no multi-family housing, limited new construction. Families with children and resources cluster around these schools and will stretch budgets, take on debt, or rent at premium prices to access them. School funding is tied to property taxes, which are tied to home values, which are protected by the same zoning laws that restrict supply. The system is designed to be exclusive, and once your kids are enrolled, moving means disrupting their education, so switching costs are high and landlords know it.

The business model doesn't create the problem, but it doesn't solve it either. It monetizes it.

The Mechanism

Here's how it compounds: an institutional investor buys a home in an elite district for $800,000 in cash, outbidding a family that could have scraped together a down payment but can't compete with a cash offer that closes in seven days. The family rents instead, paying $4,500 per month with no equity, no appreciation, and no wealth building, while the investor collects rent, takes depreciation deductions, benefits from home appreciation, and refinances to buy more homes. Repeat this across 1-3 zip codes per state, and you've built a portfolio that extracts wealth from the families who are trying to build it.

The family gets access to the school. The investor gets the asset. One builds wealth. One pays for access. This is not a partnership. It's a toll.

The McKinsey Playbook

This strategy has a familiar shape. In When McKinsey Comes to Town, Michael Forsythe and Walt Bogdanich document how consulting firms optimize systems for efficiency and profit while externalizing the costs onto workers, communities, and the public. McKinsey didn't create the opioid crisis, but they helped Purdue Pharma "turbocharge" sales. They didn't create wealth inequality, but they helped companies cut labor costs and offshore jobs. They didn't create the problems, they just made them more efficient and more profitable.

Scholastic Capital is doing the same thing in housing. They didn't create the shortage of homes in good school districts, but they're making it more efficient to extract rent from families who are locked out of ownership. The framing is always the same: "There are so many families that want access to the best public schools. There are so few housing options in those school districts." This is true, but it's incomplete.

The firm isn't building new housing. They're not increasing supply. They're buying existing homes and inserting themselves as permanent intermediaries between families and the schools they're trying to access. They're not solving the housing shortage. They're profiting from it. And like McKinsey's work, the optimization makes the system more efficient for capital while making it harder for everyone else.

The Quiet Part

From the investor deck: "The strategy is designed to be a core defensive, durable real estate allocation."

Defensive means low risk. Durable means long-term. Core allocation means this is foundational to the portfolio.

Why is it low risk? Because families will sacrifice almost anything for their kids' education. Because zoning ensures supply stays tight. Because once you're in, you're locked in.

The business model depends on scarcity remaining scarce.

If those districts allowed more housing, returns would compress. If school funding were decoupled from property taxes, the moat would erode. If families had more options, rents would fall.

The investment thesis requires the problem to persist.

The Bigger Picture

Scholastic Capital isn't unique. Institutional investors now own a growing share of single-family rental homes nationally, concentrated in high-demand markets. Research shows that institutional ownership is highest in markets with strong job growth, good schools, and restrictive zoning, exactly the places where families most want to buy.

The result: families compete with cash buyers who don't need mortgages, don't care about overpaying, and aren't buying a home. They're buying an income stream.

Redfin reported that investors purchased 26% of homes sold in Q2 2024, up from 15% pre-pandemic. In some markets, it's over 40%.

This isn't a conspiracy. It's a market responding to incentives. But the incentives are broken.

What This Costs

The costs are not abstract. They're measurable, compounding, and devastating.

For families, renting instead of owning in these districts means no equity accumulation, no benefit from home appreciation, no generational wealth transfer, and no stability. A family that rents for ten years at $4,500 per month pays $540,000 to a landlord and walks away with nothing, while a family that bought the same home for $800,000 now owns an asset worth $1.2 million and has built $400,000 in equity. The renting family also faces annual rent increases, the risk that the landlord will sell, and the possibility that their lease won't renew, which means their children's access to the school is contingent on the landlord's financial decisions. This is instability disguised as access.

For communities, the shift from ownership to rental changes the character of neighborhoods in ways that are hard to reverse. Homeownership rates fall, neighborhoods become more transient, civic engagement drops, and the people who live there don't own there, which means they have less stake in long-term outcomes and less power to shape local decisions. Research shows that homeowners vote at higher rates, volunteer more, and participate more in local organizations than renters, not because renters care less, but because ownership creates longer time horizons and stronger ties to place.

For the economy, this model accelerates wealth concentration in ways that are difficult to undo. The gap between owners and renters widens, the path from renting to owning gets longer and steeper, and the American Dream becomes a subscription service where access to good schools and stable housing requires either extreme wealth or permanent renter status. The median net worth of homeowners is $300,000, compared to $8,000 for renters, and that gap has grown over the past two decades as home prices have risen faster than incomes and institutional investors have bought more of the housing stock in high-demand areas.

The Defense

You could argue: "If families can't afford to buy, isn't renting better than nothing? At least they get access to the schools."

Yes. In the short term. For that family.

But zoom out. What happens when institutional investors systematically buy homes in the exact neighborhoods where families most want to build wealth? When the path from renting to owning gets longer and steeper? When access to good schools requires either extreme wealth or permanent renter status?

You've created a system where the on-ramp to the middle class has a tollbooth. And the toll keeps going up.

The Real Problem

Scholastic Capital didn't create this. They're responding to it.

The business model is legal. It's rational. It's profitable.

It's also quietly suffocating.

What Changes It

The solutions are not complicated. They're just politically difficult because the people who benefit from the current system have more influence than the people who are locked out of it. But the solutions exist, and they work.

Zoning reform is the most direct path to increasing housing supply in high-demand school districts. Allow duplexes, townhomes, and small apartment buildings in neighborhoods that currently restrict them to single-family homes. Minneapolis upzoned the entire city in 2018, allowing up to three units on any residential lot, and rents have grown more slowly than in comparable cities while housing production has increased. More supply means lower prices, more ownership opportunities, and less room for investors to extract rent from scarcity.

School funding reform would decouple school quality from property taxes and fund schools at the state level, which would reduce the premium families pay for access to good schools and spread educational resources more evenly. States like Vermont and New Hampshire have moved toward more equitable funding formulas, and the result is less variation in school quality across districts and less incentive for families to bid up housing prices in a small number of elite zip codes.

Tax policy changes could make owner-occupancy more attractive than rental extraction by limiting depreciation deductions for institutional investors, increasing capital gains taxes on non-primary residences, and providing tax credits for first-time homebuyers. Canada recently banned foreign investors from buying residential property for two years and is considering similar restrictions on institutional investors, and while it's too early to measure the full impact, early data shows a slowdown in investor purchases and a slight increase in first-time buyer activity.

First-time buyer advantages like down payment assistance, favorable mortgage terms, and policies that help families compete with cash offers can level the playing field when families are bidding against institutional investors. Programs in states like Washington and California that provide down payment assistance to first-time buyers have increased homeownership rates among younger and lower-income families, though they need to be scaled significantly to match the capital that institutional investors can deploy.

Build more good schools in underserved areas, because if the constraint is access to good schools, the solution is to build more good schools, not to let investors monetize access to the few that exist. This requires sustained investment in education infrastructure, teacher recruitment and retention, and curriculum development, but it's the only way to break the cycle where a small number of elite districts capture all the demand and all the housing appreciation.

None of this is radical. It's just hard. But the alternative is a housing market where institutional investors systematically buy the homes that families are trying to buy, in the neighborhoods where families are trying to build wealth, in the school districts where families are trying to give their kids a better future. And that's not a market. It's an extraction system.

The Uncomfortable Truth

Sean O'Dowd isn't a villain, and this isn't a story about bad people doing bad things. He's an entrepreneur who identified a market inefficiency (too many families want access to good schools, and there aren't enough homes in those districts) and built a business around it. The inefficiency is real, and the business model is legal, rational, and profitable.

But the solution doesn't fix the inefficiency. It profits from it. And as long as the returns are strong, there's no incentive to support the policies that would actually solve the problem, because solving the problem would compress returns. This is the same dynamic that Forsythe and Bogdanich document in When McKinsey Comes to Town: consultants optimize systems for the people who pay them, not for the people who are affected by them, and the result is a system that works better for capital and worse for everyone else.

That's not evil. It's just capitalism working exactly as designed.

Final Word

Moses Kagan's original post was about a personal trade-off that millions of families face: pay for private school or move to a good public school district. Sean O'Dowd saw a business opportunity: buy homes in those districts and rent them to families facing that trade-off. One is a family trying to optimize within a broken system. The other is a firm monetizing the brokenness.

The difference matters, because when institutional capital systematically buys the homes that families are trying to buy, in the neighborhoods where families are trying to build wealth, in the school districts where families are trying to give their kids a better future, you're not providing a service. You're charging rent on the American Dream. And the rent keeps going up, because the business model depends on scarcity staying scarce, on housing staying expensive, on families staying locked out.

This is not okay. It's legal, it's rational, and it's profitable, but it's not okay. And the fact that it's legal means we need to change the laws. The fact that it's rational means we need to change the incentives. The fact that it's profitable means we need to change the system. Because right now, the system rewards people who make problems more efficient instead of people who solve them. And that's a choice we can unmake.