Pacaso is a company founded from nothing to achieve a valuation of $1 billion in a phenomenal timeline. This company is the fastest to reach unicorn status in history, with the latest round of funding completed last month, totaling $1.5 billion.
We might conclude that Pacaso may be working on artificial intelligence (AI) form, given its incredible rise to the status of a unicorn, or it could be launching a viral social media startup. It's not.
The company is an innovative type of real-estate firm. We probably would not expect that a realty company will break records in venture capital (VC). Pacaso, however, is doing something quite interesting. It facilitates the sale of fractional shares of high-end vacation homes.
The above property is worth $4.5 million. This is a lot for most people. However, Pacaso offers 1/8th ownership at $654,000 as this price tag makes it affordable for a wider variety of customers.
Pacaso takes out debt to buy luxury homes in popular vacation markets. Some of the top location options are Fort Lauderdale, Miami, Breckenridge, CO, Park City, UT, Palm Springs, CA, and similar areas. This is a low-risk investment for the company because of current low-interest rates.
The company then creates a limited liability corporation (LLC) to own each property. It breaks down that ownership into fractions. The buyer gets to be co-owner of an LLC when Pacaso sells partial ownership with one-eighth of the LLC holdings.
Pacaso then uses the money to repay the debt that it took out to purchase the property - brilliant.
This company generates additional income by offering property management services. It handles all maintenance, cleaning, upkeep. Each owner is responsible for paying an equal portion of these expenses each month.
Further, the company offers a platform that allows owners to make reservations just like any hotel. Each owner gets a time allotment proportional to the ownership interest. As you can expect, each owner would receive 6.5 (1/8th ownership) weeks every year.
Pacaso eliminates all the hassles involved in buying, maintaining, and owning a vacation home - The company also provides financing. Consumers then share in the monthly expenses as Pacaso handles everything else.
It is very similar to the time-share model. There is a crucial difference. The buyer owns the property. They can also sell their ownership stake at any time. They can also sell their stake if the home's value increases.
Current technology has enabled all of this. Pacaso made the whole process easier by using today's technology, right down to scheduling - this is all done via a smartphone app.
Two former Zillow executives started this company. These two men are experts in applying high technology to real estate markets. This is the next generation in time-share properties, and it's far better. This could be a big trend in second homes.
Pacaso is worth watching, given the success Zillow has had with home buying and selling properties. Maybe a few Trade Selecter readers might take fractional ownership of a second home soon.