It’s the fastest an American startup has ever reached a billion-dollar valuation.
Spencer Rascoff is a man who’s helped launch some big names, including megahits like Hotwire – owned by Expedia Group (Nasdaq: EXPE) – and Zillow (Nasdaq: ZG).
So when he teamed up with another former Zillow executive to start Pacaso, a property broker… the market listened.
The duo launched the company in October of 2020.
A month later, they had investors pounding at the door as the company hit a $1.5 billion valuation.
Their business model is simple.
It’s something many folks have dreamed of.
The company buys homes – typically very nice homes in very nice locations – and sells them to multiple investors.
The buyers may just be looking for a profit opportunity (real estate, of course, is red-hot). Or they may be looking to buy a vacation property but don’t want the cost or hassle of owning the whole thing.
I’ll give you an example to show how the business works.
Simple and Rich
In February of last year, Pacaso purchased a home in Palm Springs for $3.35 million. It’s a fairly modest footprint in a beautiful setting.
Each home Pacaso acquires is owned via an LLC the company creates. In this case, the LLC contained just eight shares, which Pacaso sold for $509,000 each.
The $722,000 difference covers the cost of remodeling and furnishing the home and dealing with red tape… and, of course, Pacaso’s profit.
Once the deal is done, Pacaso charges a $99 monthly maintenance fee to each shareholder. This adds $9,504 in sales to its books each year.
They get an equity share in a wonderful home (this isn’t like a timeshare, where you merely prepurchase vacation time) without having to own the whole thing or worry about maintenance.
Folks who have the funds can purchase fractional shares of homes all around the world. And with the ability to spend as many as 44 days in a unit, they can truly enjoy the home they invested in.
There are caveats, of course…
The Other Side
The biggest one is the price. Convenience and simplicity rarely come cheap. Together, the buyers of the Palm Springs house paid more than half a million dollars over market price.
If we believe real estate prices only go up in the long term (a dangerous assumption), the owners simply need to hang on to make up the difference. It may take a decade or more to break even, though.
But structuring the ownership stake in the form of an LLC makes the cashing-out process easier. Owners simply need to sell their stakes.
This creates a liquid and transparent market.
There are deals all over the place, like…
- $375,000 for a one-eighth share of a Pacaso-designed home in Palm Springs, California
- $559,000 for a one-eighth share of a house just off the beach in Isle of Palms, South Carolina
- $638,000 for a one-eighth share of a villa along the Costa del Sol in Marbella, Spain.
But what’s most interesting about all of this is the idea that fractional ownership is not available only to deep-pocketed real estate investors.
Thanks to new technology, it’s possible to own a fraction of just about anything… even raw technology.
Fractional ownership is creating a booming market that most folks are completely unaware of.
It’s helped create one of the fastest-growing unicorns ever. And now HSBC estimates this new market could grow 2,400,000% in just the next five years.
It’s the biggest financial revolution in years…