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Millionacres Spotlight: An Interview with Austin Allison, Co-Founder and CEO of Pacaso

Pacaso, a second home ownership platform, recently announced $75 million in a Series B funding round, bringing the company’s total financing to over $90 million. It also secured $1 billion in debt financing. The startup, co-founded by former Zillow (NASDAQ: Z) (NASDAQ: ZG) CEO Spencer Rascoff and Austin Allison, launched officially in October 2020. We sat down with Pacaso co-founder and CEO Austin Allison to discuss the company's meteoric rise and the future of second homeownership.


Deidre Woollard: [MUSIC] Hello Fools. I'm Deidre Woollard, an Editor over at Millionacres, and I'm here today with Austin Allison, who is one of the co-founders of Pacaso. You've probably heard Pacaso being buzzed about. We've talked about it on the site. It's gotten a lot of attention because of Spencer Rascoff and also because of you, Austin. Let's just dive right into it. Give us a brief overview of what Pacaso is.

Austin Allison: Yeah. You bet. Pacaso is a new category of second homeownership that we describe as co-ownership that empowers people to buy an eighth or a quarter or however much meets their needs of a home and enjoy true homeownership benefits but for much less costs and hassle. Just to add one more thing to that to frame up the problem that Pacaso solves, second homes are historically underutilized assets. Most second homes sit vacant 10-11 months per year because most second homeowners only use their home 5-6 weeks per year. Meanwhile, there are tens of millions of families who aspire to own second homes but are unable to due to reasons of costs or hassle and Pacaso was created to solve that problem.

Deidre Woollard: Well, that's interesting because last year was certainly so different in terms of how people thought about second homes. I had started hearing this term, co-primary homes, you've probably heard that as well with people working remotely or their kids schooling remotely. Do you feel like that's impacting Pacaso's growth trajectory at all?

Austin Allison: I think it's certainly related. But the broader theme that's impacting Pacaso's growth trajectory is that most people who have some discretionary income are thinking about second home ownership right now and frankly, even before the pandemic, when you survey our target audience, which is currently people with more than 150,000 in household income, when you survey that audience, you'll find that three out of four families aspire to own a second home. Even pre-pandemic, this was a dream that many people shared. Post-pandemic I think what has happened is the desire and the level of interest has intensified. We're seeing an increase in home prices in second home markets. When you look at home prices, in general they've increased about 14 percent nationally and second home market, they've increased 19 percent nationally. Similar trends you can see on the inventory side of things wherein an unprecedented seller's market inventory levels were already low before the pandemic and they decreased by 27 percent year-over-year. Then again, when you look at second home markets, you'll see one thing that we like to look at is mortgage applications because that's a pretty good indicator of how many people are trying to buy homes in a particular market and we've seen mortgage applications increased by almost 100 percent, so almost double year-over-year. I think the net of it is you have more families during and post-pandemic that are going to have flexibility, whether that's permanent work-from-home flexibility, part-time work-from-home flexibility, or continuing to work in the office but now on a new culture where there's more flexibility. Most people have more flexibility and therefore, the idea of being able to use the second home is more feasible than it ever was and that is presented a tailwind for Pacaso's business.

Deidre Woollard: Interesting because I think you're tapping into a couple of trends. One of them, of course, is the demand in luxury markets we saw last year in Aspen, in The Hamptons, all places like that. But the other thing I think you're tapping into is that idea of turnkey, and I think that's really important for a lot of people. With Pacaso, are the home's turnkey and what are the fees involved related to that hassle-free ownership model?

Austin Allison: Yes, Pacaso homes are turnkey, and one other interesting detail about second homeowners and this plays into the turnkey question is, when you take that 75 percent of people who I mentioned that are interested in owning a second home and you go one level deeper and you asked them, "What is preventing you from owning a second home today?" Above 50 percent of them say cost. They either can't afford the second home or can't afford the second home that they want. The other 50 percent say justification. They may be able to afford it, but they can't justify owning 100 percent of something that they're only going to use 10 percent of the time and therefore they're happy to pay Pacaso a modest fee to provide a co-ownership service. To answer your question about fees, we charge two fees primarily. One is a service fee that we charge upfront, which is 12 percent of the real estate or of the total purchase price. The second fee that we charge is asset management fee. For these two fees, we do almost everything that you can imagine from setting up the LLC, to aggregating the buyers, to marketing the property, to state-of-the-art interior design and furnishings, we pay all the bills, we help consumers to resell their Pacaso sales at some future date in partnership with our real estate agents. It truly is a full-stack offering in exchange for those two fees.

Deidre Woollard: Interesting. It's not really an investment offering as much as it's an asset that will bring you joy. Is that how you see it?

Austin Allison: Correct. It's not an investment offering at all, in fact, if somebody is looking for an investment, there are lots of other real estate opportunities for that. This is for owner occupants who are looking to purchase and own and occupy these homes for their own personal use and enjoyment. But that being said, it's real estate that you're purchasing, so if the real estate goes up in value the real estate goes up in value, and the owners of these Pacaso homes own 100 percent of the homes once they are fully sold, Pacaso retains no ownership. If the real estate were to go up in value and you were to sell your Pacaso share at a future date, you would benefit from any capital appreciation associated with the underlying real estate. But I wouldn't think of it like an investment. In fact, there are no rentals allowed in Pacaso-managed homes, so it's expressly prohibited. This is for people who intend to own and occupy these homes for their own personal use and enjoyment.

Deidre Woollard: Perfect. It's not like the old-fashioned timeshare either. It's a different model than that?

Austin Allison: Yeah, it's very different than the resort timeshare model. The biggest difference is very obvious, which is the asset class itself. Most of the resort timeshares that you're buying into are on resort properties number 1, and they're hotel or condo-like assets number 2. These are true residential, single-family homes and residential neighborhoods. Unlike the resort timeshare, where you can generally go rent the same hotel room through the resort operators website, with Pacaso, your only alternative is to buy the whole home. We're essentially an alternative to whole second home ownership. Well, I guess the one other alternatives that's probably closer analog is do-it-yourself co-ownership. If you and three your friends or family members decided you want to own a house together, you could certainly do what Pacaso is doing on your own, but it's a real headache, it's full of risk, it usually ends in a lot of frustration and tension between the friends because there's so many little decisions that need to be made along the way and Pacaso eliminates all those hassles.

Deidre Woollard: Yeah. Go and get to real estate ownership with friends and family can be a little risky. In terms of how long someone owns the residents, it's just completely up to them, then some people can sell their shares as they go along.

Austin Allison: It's completely up to them subject to one small difference, which is there's a one-year minimum hold period that every Pacaso owner is obligated to honor. Then the only other thing that's different when reselling the Pacaso when compared to reselling a whole home is there is a right of first refusal for the other owners in the co-ownership group. Let's say you wanted to sell your share, you pick your price just like you were with the normal home, you pick what your sell prices, then Pacaso will then notify the other owners in the ownership group and give them a first right to buy for your price. If the other owners choose to not purchase, the cost of share just gets listed like a normal property. We partnered with local real estate agents on every transaction so it would get listed with local real estate agents syndicated through all the common real estate channels and also listed on

Deidre Woollard: Excellent. I've seen that you bought in Malibu, I believe you've bought in Napa, The Hamptons. What's next? What other markets are you looking at?

Austin Allison: Yeah. Right now we're in about a dozen markets that are mostly focused on the West Coast. Over the course of the next six to eight months, we will be expanding from the West to the East. By the end of the year, you can expect Pacaso to be available, a representative base of markets that are reflective of top second-home destinations around the country, and then shortly thereafter we plan to expand internationally.

Deidre Woollard: Excellent. You just had a 75 million dollar funding round. I saw in the press release that Pacaso has now hit Unicorn status, which means it's valued at 1 billion. That was a very fast ramp-up to that valuation. What does that mean for you and what does that mean for the company?

Austin Allison: Yeah. We did just raise 75 million dollars at 1 billion, which brings our total financing to 90 million, or just over 90 million. The most important thing that it means for the company is that it empowers us to achieve our mission at a higher level and our mission is to enrich lives by making second homeownership possible and enjoyable for more people which is really set differently that's about democratizing access to second home ownership. With this funding, we get more capital to invest in expansion and growth of the business. We will be investing in things like new market expansion, increase in awareness of our brand, adding heads in various markets to support the growth. It also means a lot of new really great people that will be joining Pacaso. The round was led by Dana Settle at Greycroft. Dana is a world-class investor. But in addition to Dana, there are several other world-class investors who participated including Sukhinder Singh Cassidy and Theresia Gouw of the Acrew Diversify Capital Fund, Jeff Wilke of Amazon, and many others. It's really a great list of new investors that will be joining the company. We're really excited about what the funding offers in the way of horsepower to go fulfill the mission in a bigger way.

Deidre Woollard: So what is the average price per share on a Pacaso house right now? Is it always going to be around the same price? Are you going to try to experiment with different ranges?

Austin Allison: The average or the range of Pacaso share prices is between 250 or so on the low-end to around a million dollars on the high-end. Right now, our inventory is quite luxury and quite high-end. As time goes on, we're going to be adding a lot of new price points in a lot of new markets to make the Pacaso home prices available to a much broader audience consistent with our mission. If you fast forward a year from now, you can expect to see a lot more Pacaso homes that are in the 1 to $300,000 range.

Deidre Woollard: The idea eventually is to make this available for more people. Let's talk about, what do you see in five years?

Austin Allison: Yeah. In five years, I think that you'll see that the vast majority of our Pacaso shares will be in the 1 to $200,000 range, is my best guess, five years from now. That being said, we will continue to have these super luxury homes as an option because the Pacaso model appeals to a broad audience. Whether your family makes $100,000 a year and lives in a more affordable market with some discretionary income or a family that makes a million dollars a year and lives in a more expensive market. Within that range, one common thing that you'll hear is that people aspire to own second homes. The thing that prevents them from owning second homes in most cases, it's either costs or justification. Pacaso solves both the cost and the justification problem by providing this new category of ownership that makes it really easy, regardless of whether you make 100,000 or 1 million, to realize that dream.

Deidre Woollard: How did the owners determine who gets to spend time at the home at which time, their problems around holidays or things like that?

Austin Allison: Pacaso has created a really innovative software that we call Smart Stay. From the owner's perspective, it's just available through an owner app where you can pull up the app on your phone. You have your own calendar in your Pacaso home, and you can block time in that calendar with as little as 2 days notice or as much as 24 months. But on the back end, Smart Stay technology is distributing those requests accretively across the ownership group. The net effect is that everybody gets a little bit of all the times throughout the year. You are going to get some holiday time, some peak season time, some off-peak season time. Clearly, you're not going to get 100 percent of the holidays because you don't own 100 percent of the home, but you're definitely going to get about 80 to 90 percent of what you want to add to the calendar and people are generally very happy to make that trade because they're saving 80 to 90 percent less cost and a 100 percent less hassle.

Deidre Woollard: Interesting, thank you. Just to wrap up, I was curious about why this as a company for you, obviously, in the past you created Dotloop before your successful entrepreneur, what is it about founding this company that's so appealing to you?

Austin Allison: I am a big believer that all businesses should be started to solve a problem and that all founding entrepreneurs should be passionate about the problem that they're solving. Pacaso is solving a problem that I'm really passionate about as was Dotloop. In the case of Dotloop, I started that company because I was a real estate agent and I was driving around town feeling the pain of paper transactions and I was inspired to solve that problem. Similarly, I had an experience with second home ownership that was quite analogous to that. It was about seven years ago now, my wife and I became second homeowners in Lake Tahoe. Prior to that moment, we had only dreamed of being second homeowners because it's expensive and out of reach and we didn't have the financial means at the time to really pull it off, but a series of circumstances came together and we were able to stretch and buy this home and it fundamentally enriched our lives. We became part of the local community, we met new friends, we established these rituals that are now really important to our family. We made a lot of memories and continue to make a lot of memories in that Lake Tahoe home and it fundamentally unlocked this dream that we have been thinking about for a long time. From that very moment in 2014, I've always wanted to find a way to make this dream possible for more people, and the other part of the problem beyond the fact that it's very inaccessible. Second homeownership of the past is a reality for the top 1 percent, and Pacaso is going to make it a reality for the top 20 percent of the world. But the other thing that really resonated with me about the Pacaso problem is the underutilization of these assets. I've always been a passionate enthusiast for efficiency and better utilization of things which is why Dotloop was about better, more efficient transactions. Well, it's just terribly wasteful and unsustainable to have homes that sit vacant for 10 to 11 months a year. I saw this opportunity where you had a lot of people on the demand side who were interested in owning a portion of a second home and a lot of supply in these homes that are sitting vacant and the idea over time just came together as being really obvious. Spencer and I shared a lot of those similar passions and he and I always wanted to work together. That's really how Pacaso came about.

Deidre Woollard: Fantastic, thank you. Now I am just curious, where did the name come from?

Austin Allison: Pacaso, as it sounds, was inspired by the late artist Pablo Picasso. The reason why we spelled differently, obviously, P-A-C-A-S-O, because we wanted something that was our own. That we can ultimately own. But we were quite inspired by Picasso, the artist. There were a few things about his work that inspired us. But the one that's probably most relevant to what we do is he created this style of art called Cubism, which was about taking all these individual pieces and bringing them together to create this collective whole that we know as a Pacaso. That's effectively what Pacaso, the company, is doing where we're aggregating groups of owners to come together and create this beautiful masterpiece which is a co-ownership syndicate. We felt that it was really analogous. It also has a really nice ring to it when you tell somebody you own a Pacaso in Miami. They look twice and it promotes conversation. We really like that about it as well.

Deidre Woollard: I love that. All right. Well, thank you so much for your time.

Austin Allison: Thanks, Deidre. [MUSIC]

Deidre Woollard owns shares of Zillow Group (A shares). The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.