With a mission of “enriching lives by making second homeownership possible and enjoyable for more people,” Pacaso is charting new territory in the hospitality industry and taking odds with timeshare in the process.
Pacaso Means Serious Business
Per their website, Pacaso has total financing of $90 million and has secured $1 billion in debt financing. They have also announced their “unicorn” status, indicating the company is valued at $1 billion and has achieved profitability. For being a relatively new entrant into the market, this is a significant accomplishment.
What makes Pacaso so unique as to warrant such a robust backing?
Limited primarily to west-coast locations, strategically located within driving distance of “major West Coast metros,” promotes the dream of owning a second home through a less costly investment. Once the owners have been properly vetted by Pacaso and financing is secured, Pacaso takes care of the heavy lifting. Pacaso furnishes each home and is responsible for the various property management responsibilities that come with co-ownership (house cleaning, repairs, utilities, etc.).
Pacaso leverages a unique LLC structure that allows for co-ownership of property. Targeting single-family homes, the Pacaso Home LLC provides the means to divide ownership into fractional shares, with no more than eight shares per home. Pacaso takes care of financing and closing and retains no shares in the home once the process is complete. The group of owners has 100 per cent ownership interest in the LLC and the home itself.
Assuming a 1/8th share structure, owners enjoy access to the home for 44 nights a year, with guaranteed access to a “special date” holiday and access to unlimited short stays opportunities throughout the year. Guests use a unique Pacaso app, powered by their SmartStay platform, to check availability and make reservations. Stays can be reserved between 8 days to 24 months in advance and are restricted to no more than 2 to 14 nights in duration. Owner priority is determined by the number of shares owned, among other aspects of their system and algorithms.
Owners can gift their stays to their own “registered guests,” but the homes are never available for rent.
Compare and Contrast
Although sharing some inherent qualities, Pacaso is taking great pains to distinguish itself from the timeshare model of vacation ownership. The Pacaso website provides a grid the explicitly highlights these differences, often at the timeshare’s expense.
Timeshare is painted as having little value, questionable privacy, restrictive reservation schemes, and ultimately a stress-inducing resale process. Exchange companies are portrayed as increasing fees for more desirable locations and having limited availability. Rentals and exchange guests only add to the traffic of guests within a single unit that could have up to 52 individual owners.
Benefits over timeshare are centered around the actual ownership of real-estate versus the timeshare model. In theory, this advantage ensures a more streamlined resale process, access to conventional home loans for purchase, and reasonable interest rates. Unlike timeshare, resale stress is mitigated by the use of real estate agents, as with any traditional home sale.
Pacaso sidesteps both the potential and perceived issues of rentals, exchange companies, and exchange guests by allowing neither.
A Rose by any Other Name
Wikipedia defines timeshare as “a property with a divided form of ownership or use rights. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each owner of the same accommodation is allotted their period of time.
Units may be sold as a partial ownership, lease, or ‘right to use,’ in which case the latter holds no claim to ownership of the property. The ownership of timeshare programs is varied and has been changing over the decades.”
Although Pacaso specializes in single-family second homes and enjoys many benefits under their unique LLC structure, their inherent ownership structure follows this definition of “timeshare” to the letter. It represents the “varied change” described in the definition’s final sentence.
However, many pains Pacaso takes to distinguish itself from timeshare, the battle is more than marketing. Some cities have prohibited timeshare within their communities and are having difficulty making that distinction for Pacaso.
As of this writing, the city of St Helena is one such place. They define timeshare as The Municipal Code defines a timeshare as “an ownership or leasehold estate in property devoted to a timeshare fee (tenants in common, time span ownership, interval ownership) or a timeshare lease.”
St. Helena sees Pacaso, who owns five homes in the city itself, as selling timeshare regardless of the company’s definition of its unique ownership structure. In turn, Pacaso has filed a lawsuit against the city to overturn this decision.
Not everyone can afford a second home, fractional or otherwise, and timeshare offers many benefits to those often unable to afford a second home. Rental options can often offset additional expenses and make vacation ownership even more affordable.
Luxury timeshare exists for the higher-end owner experience. Pacaso adds to the mix by offering unique shared ownership of second homes. Their desire to redefine the Pacaso brand of shared ownership as separate and superior to timeshare has yet to be proven over time. It will be settled in the legal battlefields of cities just like St. Helena.
Only “time” will tell if Pacaso is the future of second home ownership or just the newest addition to the world of timeshare and vacation ownership.