Buying Shares in a House... What You Should Know About Pacaso
At the end of March, startup Pacaso achieved Silicon Valley's coveted "unicorn" status after closing a $75 million raise that propelled its valuation north of $1 billion. One of the most remarkable things about the accomplishment is how quickly they reached this level - less than five months. It's not a new slick cryptocurrency startup, either, but rather a real estate platform designed to make owning a vacation home simpler and more affordable.
Pacaso calls itself the "modern way to own a second home." The company allows multiple people to co-own a house by dividing it into fractional shares. It brings to mind to old "timeshare" model but differs in that Pacaso gives buyers an actual ownership stake. Timeshares only give you the right to "use" a property during designated times. Pacaso creates a limited liability company to hold the title for each home and allows up to eight co-owners to buy an interest in the LLC.
Pacaso's platform is pretty straight forward. Would-be buyers can browse by vacation spot and Pacaso displays the homes they have available along with the fractional ownership cost, or cost per share. For instance, there is a 5 bedroom, 4,773 square foot beauty in Lake Tahoe listed at $2.8 million, but a 1/8th share of ownership will only run you $441,000. Users can also submit a form with their desired location and price range, and Pacaso will work with local real estate agents to try to find a home that matches. If Pacaso finds a group or individual who wants 50% of a property, they’ll set up an LLC for you, then buy the other half straightaway to speed up the deal, which they can list and sell later.
At closing, the co-owners take full ownership of the house and Pacaso stays on as property manager. The company charges a 12% fee on purchases along with a monthly fee based on the purchase price. The company sets aside a portion of each monthly fee for future repairs and maintenance. Pacaso actually has an algorithm that tracks and estimates what those future repair needs might be. Owners book time on a rolling 24-month calendar via the company’s app, with an algorithm calculating how many prime vacation days and overall time each owner has to “spend.”
Pacaso's meteoric growth would indicate they've struck a nerve on this often overlooked segment of the home market. And it was founded by a couple of guys that know a thing or two about real estate - Spencer Rascoff, cofounder and former CEO of Zillow, and Austin Allison, former Zillow executive and founder of Dotloop, which Zillow purchased in 2015. Allison says Pacaso is addressing a basic mismatch in the marketplace. “Ten million people own second homes in America. Most of them sit vacant for 11 months of the year. Meanwhile there are tens of millions of people that aspire to own a second home, but can’t afford it,” he told Fortune.
Pacaso is also betting that the lack of housing inventory is only going to get worse, and that the affordability problem extends even to upper-income families. Allison says the company's main competition is the old-school DIY style of co-ownership, where friends or family pool their funds to purchase a property. Learn more at the Pacaso website HERE.
