Meet Pacaso, the app helps you buy a luxury home with 7 other people – Robb Report

Real estate has remained such a strong asset class that a host of online investment platforms for commercial properties have sprung up in recent years. Services such as Yieldstreet, CrowdStreet, Fintor and others are leveraging the power of crowdsourcing to enable the purchase of smaller shares of ongoing developments. In such scenarios, dozens or even hundreds of investors pool funds to participate in a project, much like owning shares of a company.

With this trend accelerating and the recent boom in second and third home ownership as a backdrop, it only makes sense that a new platform would emerge – and others arrive – to bring the same idea of ​​crowdsourcing to residential purchases. Enter Austin Allison, former director of Zillow, and his start-up, Pacaso, which allows eight families to own a fraction of a luxury vacation home. Allison says he was prompted to start the business when he realized his own second home was vacant too often, which seemed like a market inefficiency. And he’s not alone: ​​More than 30 million second homes in the United States gather dust for about 11 months of the year.

Thanks to Pacaso, for $5 million a buyer can own an eighth of a $40 million mountain retreat in Aspen or a beach villa in Fort Lauderdale. But the moment you mention timeshare, a dreaded, often low-end concept springs to mind: is it just lipstick on the timeshare pig? Timeshare — where families buy a week or two a year of a condo or converted hotel room — boomed in the 1980s and 1990s, first for good, then for bad, in as maintenance, quality and transfer of act. became problematic, leading to a devaluation, according to Stephen Kliegerman, president of Brown Harris Stevens Development Marketing. While Pacaso claims to be different, “It’s timeshare in a tuxedo,” says Michael Carucci, executive vice president of Gibson Sotheby’s International Realty.

Pacaso prefers the term “condominium” to fractional ownership, and in truth, there are key differences between Pacaso’s single-family home model and the timeshare version. The company scours coveted destinations (everywhere from Palm Springs, Napa and Malibu to Miami, Telluride and Tahoe) looking for properties that fit its paradigm of desirable location and luxuries and swoops them up. Then, Pacaso’s in-house interior design director decorates and furnishes the home to match its unique style and location (think modern finishes, smart technology, and creative decor). The company then forms an LLC and buyers can purchase up to four one-eighth shares, all executed anonymously, so one never knows or meets the other shareholders.

North Bay in Miami.

Chris Pachello/Pacaso

Once fully sold, the property is 100% owned by the LLC and Pacaso continues as property manager. Allison says Pacaso aims to simplify owning a second home by removing all the friction points. Arrive to an immaculate home, with the pool recently cleaned, the landscaping manicured. All utilities supported. Since short-term rentals are prohibited, shareholders need not worry about their multi-million dollar home being invaded by dodgy characters. Each Pacaso house has storage space allowing each owner to store surfboards, golf clubs, ski equipment or even souvenirs to make the house more personalized. But you’ll still have to lug all your luggage around; there is no auxiliary wardrobe in the dressing room.

While Pacaso allows buyers to co-own a bigger home with more bells and whistles for their investment, Kliegerman asks, “If you have $5 million to spend, do you really want to share a home and be forced to plan a schedule with seven other families? At this level, you probably have additional options, where you could buy your own place, then rent it out and earn money on it yourself. »

Shareholders are entitled to 44 nights per year/share and guaranteed access to at least one significant date (eg federal holiday, popular local events, etc.) per year. Reservations are made through Pacaso’s SmartStay app eight days to 24 months in advance. All costs of running the house – property management, maintenance and landscaping, utilities, taxes and repairs – are passed directly to the owners seamlessly, without mark-up, all allocated on a pro-rata basis. Additionally, owners pay a $99 monthly fee that covers LLC monitoring, ongoing owner support, and enforcement.

Mariposa in Sun Valley, Idaho

Mariposa in Sun Valley, Idaho.

pacaso

But, as Kliegerman puts it, “What happens when the D family stays there and their kid breaks something – who pays for it?” Pacaso’s spokesperson says that while a reserve fund covers limited-life items like a dishwasher, “each owner is responsible for replacing or repairing items damaged as a result of their actions, such as a broken glass. The kid is sitting on the glass table…not the fault of Pacaso or the other owners.

Turnkey residences have been a priority for buyers in recent years, according to Coldwell Banker’s Global Luxury Report 2022, but Carucci thinks that could pose some problems in the Pacaso model when it comes to financial returns. He points out that shareholders are buying a property already marked up by 20-30% of its real value (a cost that Pacaso explains with brokerage fees, upgrades, significant investments in design, appliances and furniture and the creation of LLC).

While Allison claims co-owners can participate in “equity appreciation if the home increases in value over time,” a company spokesperson points out that “a Pacaso home is not and should not be considered a speculative investment”. Rather, its goal is to “provide a place where families and their guests can relax and enjoy their home.” This is the one and only reason for the purchase. But when was the last time someone bought a home without thinking about it as an investment, especially at the upper echelons of the market?

Hallam to Aspen

Hallam in Aspen.

Petr Wiese/Pacaso

Carucci recognizes the experiential benefits of Pacaso ownership but, he says, “I’m 150% sure it’s not a good liquid investment. The concept may have a practical use, but in my opinion it’s not a top investment. You’re paying too much up front, and it’s risky.

Kliegerman agrees that valuations can be problematic, depending on the market. In a place like Jackson Hole, Wyo., where there are fewer negotiated rental options, the concept of roommates might make more sense and the value might be close to market value. But in a place like Vail, Colorado, where there is more housing, a house can be too expensive.

Skeptics aside, Allison seems to be making a splash financially: Pacaso generated nearly $300 million in revenue for its first full year, selling over 400 units. And he raised a total of $221 million in equity. Currently operating in over 35 markets, serving several hundred owners around the world, recently adding Ibiza, London and the Cotswolds, it is quickly becoming a big deal.

Still, Kliegerman isn’t convinced the model performs best at the high end, where affluent owners have plenty of other options that might seem more flexible.

Lance B. Holton