Last year, we introduced readers to Pacaso, a newcomer to the fractional home ownership market. The company offers shared fractional ownership of very nice second homes. It is an alternative to residence clubs or destination clubs and hopes to make owning a second home more accessible to people. SherpaReport takes a look at recent news and developments at this well funded management company.
Pacaso was founded by Austin Allison and Spencer Rascoff, formerly executives at Zillow. They say that they established the company as a way of making second home ownership more available. Clients can buy a one-eighth share, or more, in a property as a co-owner. Pacaso establishs an LLC to own the property and oversees all the upkeep and maintenance. The model is similar to buying a property with friends or family but avoids much of the hassle that can arise with day-to-day management. Potential owners choose a location and their budget, and estimate how often they are likely to use the property. Pacaso then gets to work contacting realtors, finding potential properties, and vetting co-owners.
Last year, Allison spoke about the goal to increase the number of listings within the U.S., in particular, to expand to the central states and the east coast.
In July 2022, Pacaso announced an alliance with international real estate company RE/MAX. The alliance between the two companies will allow Pacaso to further expand its luxury second home destinations. Pacaso locations currently total about 40, with destinations in the U.S., Europe, and Mexico.
Pacaso’s Vice President of Industry Relations, Marnie Blanco says that the partnership comes at a time “when low inventory continues to fuel record-high home prices across the nation.” She goes on to say that the company’s co-ownership model makes “efficient use of existing homes and creates more inventory which eases market pressure.” It also “equals more sales for realtors as one Pacaso is up to eight sales opportunities.”
RE/MAX President and CEO Nick Bailey calls the alliance “a great fit for RE/MAX agents, who tend to embrace smart new ideas they can leverage to close sales and benefit clients.”
Sample listings include:
- A 4 bed, 4 bath house in London’s high-end Chelsea neighborhood. The house covers five floors and is a short walk from King’s Road. A 1/8 share costs $945,095.
- A 5 bed, 7 bath villa in Marbella, Spain. The property is in a highly exclusive development and offers luxury open interiors, expansive terraces, and views across the Golf Valley. A 1/8 share costs $788,644.
- A 4 bed/ 4.5 bath contemporary house in Baja California, Mexico. The property has marble fireplaces, a spacious patio, and a rooftop terrace. Owners can enjoy incredible views over the Sea of Cortez and will have full access to the adjoining golf course. A 1/8 share costs $475,000.
- A 6 bed/8 bath house on Hilton Head Island, South Carolina. The beach is nearby and the property enjoys a large private garden area with a pool, hot tub, and cooking area. A 1/8 share is $734,000.
Other U.S. destinations include Scottsdale AZ, Cape Cod MA, Jackson Hole WY, and multiple locations in California, Colorado, and Florida, to name just a few. Pacaso charges a flat fee of 12% on the purchase, which is included in the above numbers.
Covering the Essentials
When someone buys a share of a Pacaso property, they can relax knowing that the maintenance and management are going to be taken care of. All properties are fully furnished and decorated to the highest standards. Furthermore, all key items are provided. Known as the “Pacaso Essentials”, these include Le Creuset and Cuisinart kitchen appliances, natural down duvets and 100% cotton bed linens, Turkish towels, pool and fire pit equipment, artwork, smart TV, wifi, and anything else you can think of. Owners can come and stay without the worry that they might have forgotten something because it’s all already there. Some properties also come equipped with Peloton bikes and/or a pool table. This is not a basic timeshare. This truly is your second home.
Financing and Resale
Potential owners can choose to pay for their new home in cash, or they can seek financing for up to 70% of the cost. Pacaso’s agents can walk you through the entire process to make it as streamlined and simple as possible.
And if you are a Pacaso owner who wants to sell a part or all of a home, agents can help there as well. The LLC setup ensures that each owner has complete control over their share of the home, making any eventual sale simpler. Pacaso provides a complete market analysis of the ownership interest, based on local markets, valuations, and models showing what second home buyers are likely to pay. However, the owner ultimately sets the final sale price.
When selling a share, the other property owners will be given the right of first refusal. Then it will be made available to a broader market. Pacaso says it often has a waiting list of potential buyers for specific properties and areas. This means that a share can typically be sold without even being listed. Closing can take from a day (if paying by cash) to two weeks (for financing). This is a welcome change from buying processes that can sometimes drag on for several months.
According to the company website, “Pacaso listings resell in 12 days, with a 12% gain, on an annual basis.”
Owners can also transfer their ownership to another home if they decide that they would prefer another location or different amenities. Or, there is the option to selldown for those who own a quarter or half share but decide to reduce that to a one eighth share.
Demand for Second Homes
The luxury second home market is booming and has grown significantly since the start of the COVID-19 pandemic. Pacaso recently released a second home market analysis for Q2 2022. Among their findings:
- During the 2nd quarter of 2022, luxury second home transactions increased by 25% compared to the same period in 2021.
- Luxury second home sales are up 235% compared to pre-pandemic levels.
- Second-home buyers are interested in properties with access to beaches but also properties that they can use year-round. Some perhaps surprising growing markets include Coeur d’Alene, ID, and Williamson Co., TN, Just outside of Nashville.
One of the effects of the housing boom is that many popular locations are struggling to meet demand. There aren’t enough houses to go around. This is where Pacaso can help. Many traditional second homes are empty for as much as 90% of the year – this has been true for about as long as second homes have been around, and has been confirmed by multiple studies. The owners aren’t getting a good return on their investment if it’s unused for most of the year. Meanwhile, communities face empty properties and absentee owners. With Pacaso, a property can have up to eight owners. Those owners get a better return on their investment. Furthermore, communities benefit year-round from people living there, and the inventory problem is alleviated.
If you are thinking about buying a shared home with friends or family, having a professional management company can ease a lot of the stress of arranging all the upkeep and maintenance and avoid the lively discussions around shared contributions. This earlier article covers some of the challenges of a shared family vacation home, if you are considering the DIY route.