Pacaso: Second Homeownership for Some, The Problems of AirBnb for Others
Pacaso is an online real estate platform that allows multiple users to purchase portions of a home to be used as a second property. Pacaso purchases high end properties throughout the United States, turns them into an LLC, splits them up into shares, then allows users to purchase shares of these properties on their marketplace. Shares of homes can range from $200,000 — $1,500,000 USD. The company’s slogan is “The modern way to own a second home.” Pacaso appeals to a unique segment of users, mainly those that have a decent amount of disposable income but maybe not enough to purchase a second home outright in desirable parts of the United States. Pacaso also appeals to people who could afford to buy these homes in full but know that they will set empty 90% of the time. Think of it as a mixture between Airbnb, traditional timeshares, and a high end realtor like Sotheby’s International Reality.
Pacaso was founded by Spencer Rascoff and Austin Allison. Spencer was formerly the CEO of the popular real estate platform Zillow, Austin was the founder of Dootloop which was sold to Zillow for $108 million dollars. The company launched in October 2020, taking less than a year to gain a $1 billion valuation. Spencer and Austin’s mission is to make second home ownership accessible to more people, not just the richest 1%. Already being wealthy individuals before they started this venture, they knew that second homes were under-utilized assets, often sitting empty a majority of the time. Austin claims empty homes take away from the housing supply, do damage to local economies, and have a great environmental impact. Pacaso sought to make better use of existing resources and make things better for everyone. Although Pacaso currently operates in the United States only, they are planning on expanding to international markets like Spain, Mexico, and Caribbean nations in the near future.
The way Pacaso’s platform functions is similar to what you might expect from a traditional real estate website or Airbnb. Potential buyers can browse available listings by destination or by price. All listings have high quality professionally taken photos to accompany them as well as a thorough description of the property. Some financial information is also shown on the listing that explains the price per share and what your final payment per month might be depending on how many shares you buy, Pacaso’s fees, and how much you choose to finance. Once a user owns a share of the property they have access to the Pacaso booking app where they can make reservations and get updates about the home. Owners are vetted by the company and are kept anonymous to the other shareholders of the home. Pacaso claims to have ironed out any unfairness that may occur between share holders around special dates like the fourth of July by allowing each share holder one special date per calendar year.
In order to make money Pacaso uses a fractional home ownership model. Pacaso purchases a home, refurbishes it, purchases high end furniture, then creates an LLC for it. Ownership of the LLC is split into eight shares, those shares are then sold on their marketplace. Users that purchase one share are able to to stay at the house for 44 nights per year, but can not exceed two full weeks per visit. Users can also gift some of their nights to friends or family. Pacaso has an app that aids owners in booking their stays while also overseeing property management, maintenance, and cleaning of the property. In order to be a profitable business Pacaso charges owners 12% of the properties purchase price upfront and monthly maintenance fees for as long as someone is an owner. If you buy a share in a Pacaso home you must hold onto it for one year, after a year is up the share can be sold, the user gets to keep the profit if the property value has increased.
Pacaso has had several controversies since its inception, some being valid concerns and others having to do with NIMBYism (Not in my backyard). The biggest criticism of the platform is that because Pacaso is a massive corporation with lots of money they are competing with consumers for real estate which can cause prices to rise artificially and take “affordable” homes away from those that need them. The weaker criticism comes from angry neighbours in the wealthy neighbourhoods that Pacaso tends to operate in, these folks claim that Pacaso is going to destroy their community.
A purchase of a home that Pacaso made in Napa Valley for $1.05 million set off a chain of protests from residents. The home was previously owned by a 101 year old person, the day the home was sold it was turned into a corporation. After Pacaso renovated and refurbished the house, it was put up on their site for $1.48 million a share. Residents of this Napa Valley neighbourhood were not only unhappy with commercial intrusion into their neighbourhood but they also with the way Pacaso renovated and rebuilt the home. The project violated building codes, setbacks, and intruded onto a seasonal creek next to the house. One resident of this neighbourhood took their dislike for the company a little too far in stating on a Pacaso listing that they would “burn down any home you (Pacaso) buy in Napa.” Since this occurred Pacaso has set new guidelines for their operation, they will no longer purchase homes that are under $2 million to ensure they are not taking away affordable homes. In doing this they also sold a home they had recently purchased for $1.33 back to a full time home owner.
Other criticisms of Pacaso are not so much focused on its economic implication but more on community and quality of life for the residents that already inhabit the communities Pacaso chooses to operate in. A Sonoma Resident said “If this business model succeeds, then our town starts to become more and more like an adult Disneyland.” In Malibu the mayor stated that he didn’t believe Pacaso was good for schools or for the community. The mayor implied that Pacaso was for people who couldn’t actually afford to live in Malibu stating “They’re aiming at people who want to pretend that they’re wealthy. They’re gonna rent the lifestyle.” Back in Napa residents want to maintain their quiet communities and fear that Pacaso will bring in partying out of towners like AirBnb has been infamous for. A Napa Valley resident said “we don’t want our neighbourhood to turn into a timeshare neighbourhood and we are going to do everything in our power to make that not happen”
Pacaso is still a very young platform only being launched in 2020 and hitting a billion dollar valuation in less than a year later. Their goal of making second home ownership possible for more than just the 1% is bold and something that has not been done before. Although what is offered is clearly not for everyone it is an interesting concept with the DNA of several other successful platforms embedded into it. In at least one case of their controversies they demonstrated their ability to learn, correct course, and do the right thing. However, corporate ownership of residential single family homes is not something that is going to be popular with a lot of people. It will be interesting to see how this platform grows and evolves in the coming years or if mounting controversies attract the attention of regulators and inevitably seals their fate.
