During the Covid-19 shutdowns, there was a massive exodus of people leaving urban areas and buying second homes in resort markets. In October, 2020, the company Pacaso was founded with the goal of making second home ownership more affordable. Pacaso purchases a home and then forms a Limited Liability Company (LLC). The LLC is then divided into 8 shares and each share is sold to a different individual.
Pacaso remains part of the LLC and oversees scheduling, and maintenance, and ensures the property is well-managed. Taxes, insurance and maintenance costs are divided among the owners. After one year, an owner can sell their share to someone else. Owners use an app to book their scheduled time at the home and can hold up to 6 stays at a time. They are guaranteed at least one holiday/special day per year.
What could possibly go wrong?
Co-ownership in and of itself is not new to Park City. Many properties are owned in an LLC amongst family members or friends. What is new is the Pacaso approach to bring together groups of people who do not know each other. There was an immediate and strong reaction from neighbors in Park City’s residential neighborhoods where Pacaso began purchasing and selling shares of homes, which prompted the City to look into the co-ownership model.
Co-Ownership of Homes in Park City
Last Thursday, Park City became the first city in the country to legally define co-ownership of homes and regulate its use. The ordinance rejects the claim that fractional ownership is a timeshare. Many residents have claimed during the council’s deliberations that fractional ownership is synonymous with timeshares. But existing timeshare rules and neighborhood CC&Rs didn’t apply to co-owned homes, and that pushed the city’s planning department to create a new definition so that they could regulate property that is jointly owned.
A map of where co-ownership will be allowed, and what zones are being studied, can be found here. I have written about fractional ownership here. In my experience, fractional ownership (or in this case, co-ownership) works for a small number of people and we have listed and represented buyers of such properties.
However, generally speaking, these homes do not appreciate like a full ownership property. They are usually harder to sell. And, you can not do a 1031 exchange through the Pacaso ownership model. Some owners don’t like the fact that they can’t control which holidays they are able to book each year or how long they can stay. With Park City Municipal regulating the Pacaso model, I would further encourage all potential buyers to assess the challenges and risks before investing in co-ownership.
Source: Parker Malatesta for KPCW and Pacaso.com