Want a second home during COVID? These Zillow vets have invented a radically less expensive way to buy one
There’s an old truism about vacation homes: Nature wants them back.
Indeed between the maintenance, upkeep, taxes, hassle of finding short-term renters, and typically small number of days per year homeowners are actually in residence, vacation homes are generally a great way to make memories—and a poor way to invest your money.
Now two veterans of Zillow have a new spin on second homes—they want to pair you up with likeminded buyers to own just the amount of the house you’ll actually use. Their company, called Pacaso (pronounced like the painter), launched this week. Pacaso’s chairman is Zillow cofounder and former CEO Spencer Rascoff; its CEO is Dotloop founder and former Zillow executive Austin Allison. The company says it has raised $17 million in Series A funding, from investors including Maveron, Crosscut, Global Founders Capital, Howard Schultz, and other Zillow and Amazon executives. The startup has also secured $250 million in debt financing to purchase shares of homes.
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.
So how do you find your dream home? On Pacaso’s site you can fill out a form with your desired location and price range. Then Pacaso works with local real estate agents to find a home that meets your criteria, and pairs you up with other buyers seeking a similar hideaway. (As of now, Pacaso deals in only turnkey homes, no fixer-uppers.) 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, with the end goal of reselling the remaining shares.
For a 1% annual fee based on the purchase price, Pacaso will handle all the annoying details of managing a property from afar, from paying the utilities to finding a plumber to come fix a leaky faucet. Part of each monthly fee is set aside for future repairs and maintenance, such as that new roof which the Pacaso algorithm estimates you may need in, say, 17 years. At tax time every owner will simply get a K-1.
Owners won’t ever interact or meet each other, though Allison said at one of the company’s first homes in Napa, Calif., one family invited their friends up for a visit—and the other family promptly purchased the last remaining share of the house.
Allison walked through the math on one of the company’s first sales, a $1.9 million home in Napa. The operating costs including taxes would typically run about $40,000 a year. But Pacaso sliced this particular home up into 8 shares, with a tranche going for as little as $117,000 down (they work with First Republic bank to provide owners with up to 50% financing). Monthly costs are $600 for each one-eighth share.
With every Pacaso property, 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.” Part of the idea, says Allison, is to hook up a diverse group of owners. “This wouldn’t work if it was all families from San Francisco with kids in ski school that wanted to visit Tahoe on school breaks,” he points out. But one family with kids, plus some retirees, plus a couple like Allison and his wife who prefer the less crowded “shoulder seasons” in Tahoe starts to make more sense and fill out the calendar.
The company is launching as real estate has been one sector which has defied the typical patterns of a recession, and has risen sharply since March, as Fortune’s Shawn Tully outlined in a recent story. “These increases are unsustainable, but prices will keep rising in double digits for another six months to a year,” notes Ed Pinto, director of the American Enterprise Institute (AEI) Housing Center and the former chief credit officer for Fannie Mae. “America is running out of inventory. Buyers can’t buy houses that aren’t for sale, so they’re bidding up the prices of the relatively few on the market. That means price increases will keep racing until more inventory comes on. And new supply will come on slowly.” In the piece, Pinto predicts that prices will remain elevated until a wave of foreclosures finally ends the party. But in the meantime, those high prices are making second homes less affordable, which could make Pacaso’s model more attractive.
Going forward, Allison says Pacaso will move toward offering “enhanced personalization,” where your clothes will be arranged in the closet and your favorite wine is on the counter before you arrive. For now, each owner is guaranteed a locked closet where they can stash personal items and gear such as skis or golf clubs.
As for Allison, he and his wife already own a second home in Lake Tahoe, but he doesn’t plan to divvy up shares given that he spends half the year there.
But he’s still angling to be a Pacaso customer. “I’m going to be buying a Pacaso in Scottsdale. I’m shopping right now,” he says with a grin.
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