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Pacaso CEO and co-founder Austin Allison recognizes that the current macro-housing environment is “challenging” and “a bit turbulent.”
“But things are going well at Pacaso,” he told Inman in an interview.
Allison, on a call joined by co-founder Spencer Rascoff, the chairman of Pacaso’s board of directors, said the company is approaching a billion dollars in total revenue.
“We’re now in about 40 markets across 4 countries, and in the first six months of this year we grew by 300 percent year over year,” he said.
The industry innovators spoke to Inman upon the roll out of yet another vacation home market in California, this time at Lake Arrowhead in the mountains above San Bernardino, a rugged respite that splits the eponymous valley and California’s sprawling swath of the Mojave desert.
The company’s freshest property is a four bedroom, three-and-half bathroom A-frame shaded by mature forest overlooking the lake. While built in 1972, it’s been modernized from floor to ceiling, and uses multiple expansive openings and glass to blend the outdoors with the in. It’s exactly what Pacaso buyers look for. In fact, the company often waits to hear from buyers on desired markets before buying.
Per the company’s co-ownership model, aspiring second home owners can buy a one-eighth share of the Arrowhead home, and their representative agents will be paid in the same fashion as any other sale. In fact, the company reports it has paid agents more than $21 million in total gross commission income (GCI) since the company’s launch less than two years ago.
There really isn’t a catch with a Pacaso home, despite stigmas that seem to glom on to any new approach to buying and selling today. Everyone is afraid of the agent being cut out, even though instances of that are as hard to find as a buyer who doesn’t change their mind. Even iBuyers use agents.
“I feel we’re in the early days of an exciting new category being formed around second home ownership,” Allison said.
If three is a trend, then Allison is right, a new category is here, and growing quickly.
The numbers support his argument, as company data shows that compared to pre-pandemic levels, luxury second home sales have increased 235 percent since Q1 2020.
The U.S. Travel Association, a non-profit travel trade group, said in its July 2022 statement that “travel spending surpassed 2019 levels for the third consecutive month and hit a new pandemic high of $105 billion in June 2022.” People want to get away.
While Ember is Pacaso’s closest competitor when comparing models — although it allows share owners to short-term rent unused days — a number of other companies have seized on peoples’ desire to have access to a second home, and they carry it out in multiple methods.
Summer, a recent Inman New Kid on the Block, buys second homes on behalf of clients and essentially leases it to them for three years. It can be purchased or put back on the market after that trial run, among offering other services.
AvantStay helps buyers acquire a vacation home and manages it for them, marketing it and booking stays for vacationers. The company boasts more than 600 properties in its management portfolio across 70 U.S. markets.
Allison said that owning a vacation home enriches a family’s life in the same way a first home does, it’s a major life milestone.
“It turns out that when you buy a second home, or a primary home, you’re not just buying a piece of real estate, you’re buying a second community, a second group of friends, a second life, in a way,” he said.
But the other characteristic of second homes that drove Pacaso’s formation is the inherent prolonged vacancy. The average second home is only used five or six weeks per year, according to Allison. As a result, significant square footage in a market remains unused and the divide between full-time locals and periodic vacationers grows wider.
Allison and Rascoff see their model as one that grows a local economy for the better, and avoids problems common to the STR category, which often bleeds into the second home market.
Not only does a Pacaso home provide local agents up to eight opportunities to earn commission on a single home, more use means more need for local service providers, such as maintenance teams, daycare providers, interior designers, snow clearing professionals and all other ancillary vendors required to maintain a house, and keep it up to the standards owners expect.
“Empty homes fuel housing affordability problems, because it constrains supply,” Allison said. “They starve local economies because small business aren’t being supported year-round, and they’re bad for the environment because an empty home requires another one to be built to absorb demand.”
Rascoff left Zillow, where he served as CEO, around the same time Allison departed. It was clearly time for both of them to see what else was out there, and it took some time for them to regroup. Allison said he always wanted to build something from scratch with his previous co-worker.
“We discovered there was an ownership model that had existed, but never became mainstream,” Allison said.
That version of joint ownership was more DIY, with families informally becoming co-owners.
Unlike Allison, who said he grew up in Ohio living “paycheck to paycheck,” Rascoff knew the benefits of a second home.
“It was very meaningful to our family, it was our happy place,” Rascoff said about his family’s second home on Long Island. “My parents unplugged, and it allowed us to connect in ways we couldn’t when in our home in New York.”
Rascoff said he sees the same experience forming with his kids because of his vacation property.
“I’m a better parent, I’m a better sibling, I’m a better husband,” he told Inman.
It sounds cliché at first, but Pacaso’s mission is to “democratize second home ownership,” according to Rascoff.
Rascoff elaborated on his passion for the idea, sharing that Pacaso has a deeper plan to move closer to the mainstream. He told Inman he wants more people, “maybe even millions,” to someday be able to experience what having a home away from home can provide.
“As we expand into more markets and more approachable price points, we’re going to democratize second home ownership,” he said. “It’s a super exciting mission.”
Rascoff admits changing lives via Pacaso’s model is more inspiring than selling ads to real estate agents, “Which Zillow has done really really well,” he said.
Another point Rascoff likes to make about his company is the value co-ownership offers. People get more time and thus, more value, from a Pacaso share.
“It’s a little known fact that the reason we chose one-eighth units as our share of sale is because one-eighth is about six weeks,” Rascoff said. “Even for those people who own all of their second home, on average they use it about six weeks per year.”
The conclusion is that a person will spend $2 million on a second home for six weeks of use, so why not spend one-eighth of that amount for the same return on experience?
It can also be argued that the co-ownership model places a type of personal obligation on a share owner to use their time. Anything seen as limited typically has more intrinsic value.
On the subject of overcoming stigmas that accompany new models in the industry, Allison and Rascoff simply think it needs more time.
“I agree there are opportunities to further educate the agent community, but I continue to be blown away by the rate at which our category has been adopted by consumers and agents,” Allison said.
Dotloop, the transaction management software Allison built and sold to Zillow, took “six or seven years” before the real estate community really understood what it was, he said.
“By the time I left, half of the transactions in the country flowed through it.”
Once more agents see the commissions being made by colleagues who have sold a Pacaso share, “It becomes evidence of a model that works,” Allison said.
Pacaso pays a 3 percent commission to agents for every buyer who closes on a share. It also offers equity in the form of 500 restricted stock units (RSUs).
Rascoff is big on the greater concept of accessibility, often leveraging the word “democratize.”
“There is a really exciting trend right now around democratizing the real estate asset class, it’s a huge part of GDP but pretty inaccessible to most people,” he said.
“It’s all being done through fractionalization,” he said.
The company wants to ensure that it doesn’t minimize home buying opportunities for the first time primary home buyer or the working class, mainly because its homes are seven to eight times more expensive than the average priced home in their respective markets.
“Somewhere I read that someone compared co-ownership to carpooling,” Allison said. “Empty second homes are like SUVs driving down the highway with one person in them. Of course you’d rather have a single SUV with eight people in it. That’s what a co-owned second home is.”