🏡 Second home co-ownership marketplaces
One year after Pacaso became a unicorn
Good afternoon everyone 👋
Welcome to the 27th edition of our weekly insights. Today, we’re exploring the second-home co-ownership model, a year after Pacaso became a unicorn.
As always, feel free to like, comment or share. And if you like this edition and still aren’t a member of Upscalers… you can join us now!
🏡 Second home co-ownership marketplaces
It is no secret that the Covid-19 pandemic has, for some time, completely changed where and how we lived. Workers, as they were suddenly allowed to work from pretty much anywhere, felt an imperative to have a retreat, a safe haven for their family. The pandemic prompted a complete reassessment of property needs, with people rushing for part to quasi full-time relocation to city-distant homes, where they could find some outside space and amenities for long stays.
As a result, the market for second homes exploded (e.g., number of second homes sold in Britain in the first half of 2021 rose up 55 per cent from the first half of 2019), and prices went up as demand did too. In 2020, an impressive 25% of the French population said they were willing to buy a secondary home.
Yet, Europe is now waking up from the pandemic. Offices and schools have reopened, some companies’ remote work policies are tightening up and travel options are widening. With this “return to normal”, enthusiasm for second-home is curbing, with people taking more time to analyse their options and make an advised decision on what to buy.
In the next few years, the trend for second-home ownership is likely not to go away. But considerations such as accessibility, public services offering (education, transport), amenities for remote work and instant availability will be more important for buyers when making a decision. Second homes are becoming more permanent residential options, even primary homes sometimes, not places to be enjoyed for 2 weeks over the year anymore.
In that context, let’s take a look co-ownership models and question whether there’s an opportunity for them to thrive…
The co-ownership model
The concept of sharing vacation properties has been around for quite some time now. You might be familiar with timeshares whereby a large number of parties (up to 52, 1 per week) purchase the right to use a property for a set amount of time (not true property ownership). Most of the time, these refer to stakes in hotels or resort accommodations.
Timeshares have been around since the late 1960s (in the US), and are a $10.5 billion industry (2020), that is showing no sign of slowing down — sales volume +5% annually since 2015.
What’s new is the rise of real estate marketplaces leveraging tech to bring together small groups of buyers to purchase shares of a single-family home and enjoy ongoing access throughout the year. The way these startups work is the following:
They purchase a home either outright or shares in a home (most of the time after securing customers’ intentions to buy up to 50 percent of the shares)
They sell shares of the home to buyers through an LLC — from 1/8 of the home per buyer to a greater percentage (up to 1/2). Co-owners, whether friends, families or strangers, own 100% of the LLC as marketplaces don’t retain any shares.
They help owners to divide up responsibilities (e.g., operating costs, property management, maintenance, taxes and repairs)
They provide “smart” scheduling systems allowing mutliple co-owners to schedule their time in the house.
They enable secondary market, as shares of the LLC can be sold by owners to new buyers.
Interesting, isn’t it?
Founded in October 2020, Pacaso 🇺🇸 is the leading player in the space. The startup, founded by ex-Zillow executives (inc. CEO & founder) was the fastest one ever to become a unicorn after raising a $75 million round in March 2021 (it has raised another $125 million since then).
At the time of their latest round, the company managed around $200 million in real estate, and its website and mobile app cumulated 1.8 million visits in Q2 2021 (+196% from Q1 2021). Pacaso has a focus on the luxury market (property price per share ranges from $250K to $2.5 million, x8 shares) with listings in the US, Mexico and Europe.
In the wake of Pacaso, a few players popped up in the horizon with similar missions but different positionnings or target markets:
Kocomo 🇲🇽, total funding amount $56 million (debt+equity). Kocomo’s main difference with Pacaso is its focus “on the cross-border vacation homes which are more like a two- to three-hour flight away from where the owners are located”, rather than a two-hours drive away. Their price point is also lower than Pacaso (from $90k per share to $800k, x8 shares).
Prello 🇫🇷 ($13 million funding), Lazazu 🇫🇷, Everomes 🇦🇹, Altacasa 🇬🇧 ($2 million funding), all have pretty similar price points to Kocomo, but with a focus on facilitating co-ownership of European villas (in France, Spain, Portugal, Italy mostly) for customers in their respective home markets.
… and another that we’ll keep secret for now 🤫
You do understand that the space is already crowded, with one champion leading the way (Pacaso). Pacaso already has a significant edge with funding, which will allow them to move fast to new locations and get market share.
However, I don’t believe the space is a winner takes all as multiple business models and positioning might thrive.
In the wake of Pacaso, other players have targeted the mass market with lower price entry points for more distant properties accross Europe. These players will compete on depth of their listings and capacity to find price-attractive deals which will in turn provide efficient secondary market solutions (with attractive ROIs) to their customers. Most importantly, their success will depend on buyers’ familiarity with co-ownership models, or on their capacity to imprint the model into customers’ buying culture. The one finding the right ICP is likely to be the most successful… and there is still plenty of customer profiles to address 😉
On this, marketplaces’ success will reside in their capacity to ensure that the 1/8 co-ownership model will be valued by customers over time. As mentioned above, the imperative for buying a second home seems to be less urgent than it was during Covid. Buying a second home has got to measure up to the primary residence and became purely transactional with buyers looking for accessibility, availability and convenience first.
However, co-ownership models are inherently tied with frictions in demand for occupancy. I do not think “smart” scheduling options are powerful enough to alleviate them. These frictions might be a deal breaker for prospective buyers, who could be better off turning to rental while keeping their powder dry until they could buy a full second home by themselves.
For sure though, any startup who would manage to strike the right balance between supply of dates per property and demand of its co-owners is likely to thrive. There might be opportunities for example to refine the model by providing pools of customers with ownership exposure to bundles of properties, in less-distant locations with additional services on top (says Yoann 👋). More accessible properties, more flexible booking periods and subsequent increase in supply of available dates could be the right balance for companies in the space.
We’ll probably tell more about this to Upscalers members in the following weeks….
Hope you enjoyed the read.
As always, feel free to share your thoughts and ideas in the comment section below.
I’ll see you next week