In the tightest housing market in memory, it’s hard to fathom the fact that thousands of popular second homes sit empty for most of the year. This inventory is neither rented nor listed, which seems a shame given the beauty and emptiness of these houses.
It’s an opportunity that awaits the right entrepreneur, much like what Airbnb did in 2008, in theory at least. The reality of putting luxury second home stocks on the market is less of a “rent that lakeside cottage” pitch and more of a “live in this community” proposition.
To hear Pacaso co-founder and CEO Austin Allison describe the current housing crisis, as he did with PYMNTS’ Karen Webster, there are two solutions to homeownership inaccessibility.
He said: “The first is to build more houses so you have more supply to absorb demand, or two, make better use of existing supply. This is where we fit in, as most second homes remain vacant 90% of the time. We are essentially consolidating demand in fewer homes.
In this way, what happened with private jet co-ownership is (sort of) happening to high-end second homes as Pacaso beats the drum on his “co-ownership” model, saying “what carpooling is to traffic, condominium is this to the problem of housing affordability.
As supply shortages and sky-high prices put an entire generation at risk of lifelong renting, Pacaso is putting a piece of the homeownership dream within reach, selling an eighth of second home shares to up to eight buyers, or multiple actions to individual buyers.
It grew out of his own experiences trying to afford a first home in the Bay Area – Allison said he and his wife had to rent theirs on Airbnb a few times to make the mortgage – and it has lit fire under a passion to unlock the value of largely unused second homes.
He told Webster that unused second homes hurt local communities because they “starve local businesses when not supported year-round,” and it also robs potential homeowners of the experience “to buy a second community, second group of friends, second life in many ways I wanted to find a way to make this possible for more people.
Saying the pandemic has provided headwinds and tailwinds to get the concept off the ground, he said the biggest impact is new mobility. “More people have [work] more flexibility than before, allowing more people to use the second home. »
That he started the company at the start of the pandemic is irrelevant, because “Pacaso’s most important core value as a company is embracing an infinite mindset, which means we certainly don’t think short term, we don’t even think long term. , we think of infinity.
“We believe in building a business that lasts for generations and enables millions of people to live better lives. It doesn’t really matter what happens this year or next year or the year after that if you think long term.
See also: Pacaso accepts crypto for second home purchases
Second homes as a first chance
Simply put, Pacaso either manages second homes for homeowners or purchases luxury homes directly. Either way, an LLC is formed that sells eight shares in each home. This is not a timeshare. It’s not an Airbnb. Pacaso customers become co-owners of a private home, without the care and maintenance responsibilities that most full-time homeowners face.
With around six million visits to its site last year, Pacaso says it now operates in 40 destinations and has sold 800 units to date, including 400 in the first half of 2022 alone.
“The way we think about our markets is that we look for places where people want to own second homes. It’s very demand driven,” Allison told Webster. In other words, the places people ask the most questions about are the markets Pacaso focused on in its first two years.
Launched in California, it still faces west, slowing its eastward move, Allison said, imagine buying a house with several friends. “It seemed like a good idea…” is how these stories end in the DIY world, but Pacaso has created a process and an approach to handle it.
“Each home has its own property-specific LLC, which is a very common ownership structure that’s been around for decades,” he said. “Pacaso created the management service that makes it easy for people to become co-owners of the house without any headaches or hassles, as we take care of the design, the furnishing, the payment of the bills, the coordination of the ‘maintenance.”
The company charges for its property management and maintenance services, which involves “setting up the co-ownership structure to start with where we create the LLC, we buy the properties, we put the co-owners together, we carry the house for some time on our balance sheet as we sell it, and we charge a 12% service fee for that.
Pacaso also offers financing, used by approximately 75% of its customers. “We make some money on that,” he said. “The third way we’re not making money today, but on a large scale we’re going to make money, is through property management.”
It’s usually families who come to Pacaso, Allison said. “We are also seeing a wide range of buyer profiles ranging from young families buying perhaps their very first second home through Pacaso. They’ve been deprived of home ownership in San Francisco, LA, New York, Seattle, wherever they live, and so they’re renting out their main apartment and buying their very first home through Pacaso.
See also: Vacation home startup Pacaso raises $75M for $1B valuation
The new-new digital nomads
As second homes, Pacaso’s inventory is decidedly upscale, but often just outside the major population centers and suburbs that have gone crazy price-wise over the past couple of years, and to meet in the era of the pandemic, work from any lifestyle that has taken root.
“I guess the way I would sum it up is about what we call ‘freedom of place’ at Pacaso. Following the work-from-home trend, many families now have more freedom to live essentially more nomadic lives, and many people are taking advantage of this.
Allison now lives in Napa and said, “I could never have lived in Napa Valley if I had to go to the office every day of the week, which I used to do. I used to work in San Francisco, and it would have been impossible for me to drive three hours each way in the traffic to get into the city. Now I can work from anywhere. There are many people with this flexibility.
Some high-profile NIMBY complaints are foiled by Pacaso’s vetting process and owner’s code of conduct, which is about community living, not house partying.
He said “everyone signs this and really embraces it culturally as what it means to be an owner through Pacaso. It goes beyond the fact that we require it as part of our model. These people are owners. They do not rent a home for the weekend.Rentals are prohibited.These are owners who commit significant capital for the initial purchase as well as ongoing operating expenses, from taxes to insurance to utilities.
Supporting this thesis, he said that a recent study conducted by Pacaso found that “Pacaso homes generate approximately 10 times more economic activity for the local community and tax revenue than a normal second home. These people are at home, in the community, shopping in markets, frequenting local restaurants. They are all part of it. As much as they are buying a house, they are buying the community the house is in.
The Pacaso platform also does “selldowns” where the owner of the second home resells it to the company while retaining a share for their own use. It was their second home in the first place.
Of the roughly 10 million second homes in the United States, “the vast majority” remain vacant 80% of the time or more. “There’s never really been an option for those who own 100% of their home but only use it 10% of the time until now. Pacaso offers people the option of selling part of your home, keeping the amount you were using anyway, and putting the management burden on a company that does this for a living.
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