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The marketing of co-owned vacation homes in a scenic part of Northern California is causing an uproar among full-time residents. Real estate company Pacaso is buying single-family homes within driving distance of busy metro areas, and reselling them to as many as eight buyers. It’s an idea that has evolved during the pandemic. But it’s also creating a debate over the impact of co-owned homes in single-family neighborhoods.
Pacaso was planning to launch its co-ownership plan in a few vacation spots before the pandemic began, but like everything else, those plans were delayed by COVID-19. Over those next several months, the Pacaso strategy changed. The pandemic highlighted the importance of “home” and created new vacation preferences. Pacaso’s original idea for co-owned vacation homes that might involve air travel morphed into one focused on a one to two-hour drive from home.
At the helm of Pacaso are two Zillow executives -- former Zillow co-founder and CEO, Spencer Rascoff, and former Zillow executive, Austin Allison who’s serving as the Pacaso CEO.
The concept of co-ownership is nothing new, but they say Pacaso makes it easier. As the website boasts: “Co-ownership simplified. We manage the home, and you own it. It’s the modern way to buy and own a second home.”
Allison also explained in a press release: “The traditional process is difficult, high risk and onerous. Pacaso is the easy button for co-ownership.” They finally launched their new Pacaso model last October with $267 million in funding. The company is calling it the “Pacaso everywhere” plan.
It begins with an interested buyer who wants a part-time vacation home they can drive to. Pacaso helps that first buyer determine how much time they’d like to spend in the home, sets up an LLC, and finds other buyers. Pacaso also manages the property so the owners don’t have to.
As many as eight buyers can purchase a home and use the home for 44 days a year. Buyers can buy more than one share if they’d like more time in the home, and that would reduce the total number of owners.
In the city of Napa, Pacaso is selling co-ownership shares for a home on Rainier street. It’s a quite, working-class neighborhood, according to a CBS report. Homes are about 1,300-square feet and sell for $700 to $800,000. The Pacaso home is going for $184,000 a share.
It’s not a short-term rental because all the people occupying the home are owners, but it’s causing a short-term rental type uproar. In this case, the neighbors are opposed to having what they call a “time-share” vacation home in their neighborhood. Some of those neighbors told CBS, they feel like the co-owners won’t be involved in the community and are simply “sneaking” into the neighborhood. Signs have gone up staying: “Stop Pacaso. Don’t commercialize our neighborhood.” They also argue that co-owned homes are reducing the affordable housing supply. It worth noting that homes in that neighborhood are going for 700 to $800,000.
Pacaso’s Allison had a few good points in response to the uproar. He argues that by selling these homes to eight second-home owners, there are fewer people in the competition pool for second homes. He also clarifies that these homes are not time-shares because they are owner-occupied.
His arguments didn’t convince the City Attorney in nearby St. Helena who declared them illegal under a law that prohibits time-shares. Pacaso has filed a lawsuit in that case.
In defense of company objectives, Allison says Pacaso is helping people who can’t afford to buy their vacation dream homes or don’t want the home to sit vacant for most of the year. And he says: “It’s really not up to other neighbors to say who can or can’t own in their neighborhood. Just because somebody can’t afford a $1.5 million home, doesn’t mean they shouldn’t be able to co-own a $1.5 million home with a coupe of other people.”
If you want to investigate this topic further, you’ll find a links on the podcast player page for this episode at NewsForInvestors.com.