Americans feeling trapped at home during the pandemic want more space. The creators of a new startup think they can deliver it with a fresh spin on the timeshare business.
Pacaso, a venture between two Zillow Group Inc. alumni, is using a vacation model to sell ownership in weekend homes.
Similar to a traditional timeshare, Pacaso will give buyers the right to use the house a certain number of weeks a year. But where timeshares typically cluster in holiday hot spots like beach towns or mountain resorts, many of Pacaso’s homes will be located in suburban and other residential neighborhoods.
“This is not just for Napa Valley, Santa Barbara or fancy vacation destinations,” said Spencer Rascoff, Zillow Group’s former chief executive and a Pacaso co-founder. “This is for that lake outside of Detroit, where maybe you’ve had your eye on getting a little lodge.”
The company is looking in places like Austin, Texas, and Scottsdale, Ariz., said co-founder and CEO Austin Allison.
Pacaso is launching on Thursday with four homes, but the company aims to operate in 25 U.S. markets and expects to ramp up with hundreds of homes a year from now.
The pandemic is changing where and how people want to live during a period of work from home and social distancing—and how businesses are looking to cash in on the trend. The company has raised $17 million in venture funding and counts former
CEO Howard Schultz and
executive Jeff Wilke among its investors.
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With Americans spending more time at home, some buyers are leaving crowded cities for the suburbs or rural areas. Others want to keep their urban address but want the option of escaping from time to time with a second house. Mortgage-rate locks for second-home purchases have nearly doubled since last summer, according to a September study from the American Enterprise Institute, indicating a surge in second-home purchases.
Founders of Pacaso—the name is a nod to artist Pablo Picasso—said they came up with the idea before the pandemic but adjusted their plans during the Covid-19 outbreak.
They would specialize in houses within a two-hour drive from a main residence that owners could visit frequently. Housing inventory has been especially low in hot second-home markets, making houses harder to find and afford.
Here is how it works: Home buyers find a home on the market they are interested in partially owning, or browse through Pacaso listings. If Pacaso views a home as a good investment, it buys the house and sells between 12.5% and 50% to the new owner; then the company tries to sell the remaining shares. Pacaso also manages the homes.
The company enables buyers to finance as much as 50% of their share through a program with
First Republic Bank.
Unlike most timeshares, Pacaso’s buyers actually obtain partial ownership in the property.
Pacaso aims to profit by charging a markup on the individual ownership shares of about 10% to 15% and by collecting an annual maintenance fee equal to 1% of the purchase price.
The timeshare model has historically been tough to make a financial success—for both operator and customer. The units can be notoriously difficult to sell, with buyers often dumping them for pennies on the dollar just to escape the annual fees. Timeshare values usually appreciate at a slower rate than fully owned homes, and Pacaso owners could suffer a similar fate. Home buyers might also compete for prime weeks of the year, like summer months and holidays, leaving some inevitably disappointed.
Kirk Law, a tech executive from the San Francisco Bay Area, is one of the first owners. He and his wife, Sheray, paid $233,000 to own one-eighth of a home that backs up to a vineyard in Napa, Calif. Napa was a favorite place for them to visit. They usually would stay at hotels, but the pandemic made that less attractive, Ms. Law said.
“If there was a time to do it, right now is a pretty good time,” Mr. Law said.
Write to Will Parker at [email protected]
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