A Startup Is Turning Houses Into Corporations, And The Neighbors Are Fighting Back

[Jilly_in_VA]

On a sleepy cul-de-sac amid the bucolic vineyards and grassy hills of Sonoma Valley, California, a four-million-dollar house has become the epicenter of a summer-long spat between angry neighbors and a new venture capital-backed startup buying up homes around the nation. The company is called Pacaso. It says it's the fastest company in American history to achieve the "unicorn" status of a billion-dollar valuation — but its quarrels in wine country, one of the first regions where it's begun operations, foreshadow business troubles ahead.

Brad Day and his wife Holly Kulak were first introduced to Pacaso in May, after a romantic sunset dinner in their yard. "And we just saw this drone, coming up and over our backyard," Brad says. "And we're like, what is that?"

Pacaso denies directing or paying a drone operator to film the neighborhood. But its website does have drone photos of the house in question, located at 1405 Old Winery Court. It says it bought the photos after the fact.

Nonetheless, after the drone incident, Brad and Holly got suspicious about what was going on in their neighborhood. About a week later, their neighbors told them they were moving and selling their house to a Limited Liability Corporation, or "LLC." But they were super vague about it.

https://www.npr.org/sections/money/2021/08/24/1030151330/a-unicorn-startup-is-turning-houses-into-corporations
____________________________________________________________________
This is creepy and awful and I'd fight back too!

[Scrivener7]

1. This is kind of inevitable in a place where a 1/8 share of a house costs 600K.

[tulipsandroses]

21. Here's the article about republicans wanting to seize this issue

Last edited Tue Aug 24, 2021, 01:34 PM - Edit history (1)

Conservatives looking for a fresh populist message to carry into 2022 are taking on Wall Street firms for buying up single family homes as rentals, attacking the growing practice as hurting the middle class.

Blackstone Group Inc., KKR & Co. and other private-equity firms are increasingly making new investments in single-family homes to rent out, betting that the hot housing market will generate solid returns as the U.S. emerges from the coronavirus pandemic.

But the trend, which comes as a shortage of homes for sale is driving up prices, is making the firms attractive targets for politicians who want to appeal to the blue-collar voters former President Donald Trump energized.

Sorry for not providing a link. It’s an article from. Bloomberg.com. It’s behind a paywall.

[tulipsandroses]

2. Part of the reason for the insane increase in home prices

Corporations are buying up the available homes. Often squeezing out families with cash offers. It’s absolutely insane what’s going on in the housing market. They are turning them into AirBnB homes or reselling or renting at ridiculous prices. Just looked at the Pacaso site. It says own a luxury 2nd home for 1/8th the price. Didn’t read all the details but sounds like timeshares.

And yes sending drones to scope out homes is creepy.

[Budi]

3. Who is Pacaso? Slick Ad. So who are they?

The LLC simply tells us there's more questions.
Taxes, hidden & untouchable movement of money,, etc.

https://www.pacaso.com/about

"Pacaso started with one guy achieving his personal goal of owning a second home. That guy is Austin Allison, tech entrepreneur and now CEO of Pacaso. Austin created a new category of second home ownership to help make the dream possible for more people"

Hmmmm..
Gotta do some factchecking on Austin Allison, tech entrepreneur & the rest of crew listed.

[csziggy]

4. It's just rebranded time share deals

Houses rather than condos but the same business model.

Of course, time shares have been a blight on the real estate market for decades so no wonder they don't want to call it that.

[Hassin Bin Sober]

8. A time share only gives you the right to use.

A partnership like the one in the op is just that - a partnership. They own a share of the real property. The only semi unique part is the way it’s marketed and facilitated.

[csziggy]

12. The outcome is still the same

The buyers pay for the right to stay in the location. The major difference I see is that it will be much harder to get out of this kind of deal than out of a time share - and time shares are notoriously hard to get out of. Buying people out of time shares is just as big a scam as selling them in the first place.

I bet in a few years there will be companies buying people out of these partnership LLCs just like getting people out of time shares.

[Hassin Bin Sober]

17. You couldn't be more wrong. They are owners of real property. Not air.

I’m in a handful of similar partnerships (vacation rentals). I lay awake dreaming at night wishing my partners would only like their initial investment back. Lol.

Our difference is we are friends and family - we weren’t facilitated by a smart dude with a website.

[muriel_volestrangler]

24. Seems like a timeshare to me

Types of Timeshare Ownership
Timeshares are typically structured as shared deeded ownership or shared leased ownership interest.

Shared Deeded Ownership
Shared deeded ownership gives each buyer a percentage share of the physical property, corresponding to the time period purchased. A resort condominium unit that is sold in timeshare increments of one week can technically have 52 total deeds. In other words, buying one week would confer a one-fifty-second (1/52) ownership interest in the unit while two weeks would give a one-twenty-sixth (1/26) interest and so on. Shared deeded ownership interest is often held in perpetuity and can be resold to another party or willed to one's estate.

https://www.investopedia.com/terms/t/timeshare.asp

[csziggy]

28. Thanks for that reference

"A rose by any other name" or something like that!

[kcr]

27. That's exactly what it is

They don't want to call it that because it is illegal in many tourist areas and neighborhoods. They aren't the first company to try that argument to get around those rules, so they won't be the first ones who lose.

[dalton99a]

5. Kick

[MineralMan]

6. A homeowner can't complain about the person someone else's

house gets sold to. Truly. It's none of your business who buys the house next door, really.

We're in the process of selling our previous home. Crews have been coming and going doing repairs, cleaning, painting and other work on it. After 17 years of living there, it needed a bunch of things before going on the market. Our real estate agent is coordinating all of that, and I'm just paying the bills. I'm going over there today, probably for the last time, and bringing whatever tools, etc. I took over there on earlier trips back here. The rest is up to our real estate agent.

"What colors do you want in the interior," she asked me. "Whatever colors you think will help sell it. I won't be living there any longer, so my opinion doesn't matter." That's my attitude about all of it. Soon, I hope, someone else will own it, warts and all. We're just putting lipstick on the pig so that the prospective buyer will have a good first impression of it.

What do my former neighbors think? I don't care, frankly. The point is to sell the house to someone new. Who? I don't know, and don't care. Since about 2/3 of that neighborhood has Hmong residents, it's very likely that a Hmong family will buy it. How much will it sell for? About the same as the other houses in the neighborhood, I imagine. It has a brand new roof, has been painted completely on the interior, and new flooring is going into the lower level in 10 days. Windows are clean. Kitchen cabinets have a fresh coat of paint, and there are some new, contractor-grade appliances. It's not perfect. It's almost 70 years old. It's a starter home in a neighborhood full of virtually identical houses built in 1954 by a developer. It will sell immediately, as houses at the bottom of the local market always do. I'll accept the first offer that has a buyer who can actually buy it and that is at or over the asking price, which has yet to be set.

If the next door neighbor doesn't like the people who buy it, what's that to me? That neighbor probably didn't like me, either. It might even end up as a rental property, purchased as an investment by someone. I don't care. It is not my house, already. The next owner gets to decide. I'm done with it.

[tulipsandroses]

10. If this was a "regular home buyer" I would agree with you

However, this is corporate greed. They are making the housing market less affordable. By turning family homes into timeshares, Airbnb’s and other businesses ventures, Here in GA, communities have been pushing back at this practice. Limits are being placed on how many AirBnBs can be in one area. I hope we will have more regulations about this practice across the country.

[MineralMan]

11. Lots of real estate investors are LLCs.

People who buy rental properties as investments often operate as an LLC. My point is that it is just a house. If you're selling it, pretty soon it's not your house any longer. If you're a neighbor, it was never your house, so you have no say in the matter at all.

If a community puts some sort of limit on short-term rentals or there's an HOA with rules that must be followed, that's another matter. Still, however, it's not a neighbor's call to make, really. You don't get to choose who owns the house next door or somewhere on your block. That isn't how it works.

You own the house you live in, if you bought it. That's as far as it goes. Your interest in your own real estate ends at your property line.

[tulipsandroses]

13. There are zoning laws for a reason. They should apply to these investors

I don’t think when most people buy a home, they expect that they will be surrounded by mini hotels. This is a creeping problem that needs more regulations. In fact, I read somewhere recently that republicans are planning to campaign on this issue next year. Which would be interesting since they are always in favor of business. But their plan is to convince folks to vote for them to fix this growing mess. There are lots of articles written in the last few months about this.


This is the kind of practice I’m talking about.
NEWS

https://www.google.com/amp/s/www.fatherly.com/news/investors-single-family-home-market-rentals-wealth/amp/

The Real Reason it Matters that Investment Firms Are Buying Up Houses
Record-high prices and record-low interest rates are luring massive investors into the residential home market. Here's what it means.
By Cameron LeBlanc
Jun 21 2021, 12:25 PM
Owning a primary residence is the single greatest source of wealth for middle-class Americans, and it has been for a long time.


An entire body of public policy—from tax breaks on mortgage payments to local zoning that favors single-family homes over apartment buildings—has been built around encouraging homeownership. That’s why the recent entrance of well-capitalized investors into the single-family home market is so concerning to so many.


Young couples are now competing with more than 200 firms, from tech startups to money managers to rental platforms, to purchase houses priced at record highs. If you want as many regular people as possible to be able to afford a home and build up their wealth the way previous generations have, having investors able to spend tens of thousands of dollars above the asking price and pay in all-cash, all across the market, certainly isn’t an encouraging development. But just how big of a problem is the entry of permanent capital into the housing market? Here’s what we know.

[MissB]

22. That's a good way of looking at it, frankly.

I really liked my next door neighbors. They’d lived there 50 years and were the second owners of the house. She started showing signs of dementia a couple of years ago and he finally made the decision to move into a place where they could both receive the care they needed as they aged.

I was hopeful that a young family would buy it- it’s a four bedroom house and that’s the typical demographic of that house/property in the neighborhood. It needed a new kitchen and updated bathrooms but it is a sold house.

But no, we ended up with a younger single person that is tearing down the 3500 sq ft house and building a 6500 sq ft house (not including the 1800 sq ft garage).

I can’t complain. It was never my house. The former owner is probably sad that the house he raised his family in is being torn down, but he got the $ that he wanted.

Someday, we may sell and the new owner might tear down this one. If I’m still alive, I’d be sad but again, I’d get the $ that I wanted and they’d have the property they wanted. It’s a fair trade in the end.

Take the memories with you, because you can’t take the house.

[MineralMan]

23. Yes, it can all be very difficult.

Houses are whatever they are. We buy one and live in it until we decide to sell it. The first step of transitioning is to stop thinking about the home you're selling as your home, and start thinking about it as someone else's home. So, you do what is needed to make the house as salable as possible, not in your style, but in whatever style is currently popular. If you think of it as the next owner's home, it makes the transition easier.

Then, when looking for your next home, don't look at it as the other person's home, but as yours. You can make any changes you wish, once you own it, but the current owner made it theirs. A smart seller will do things like interior painting in neutral colors. The new owner can repaint it if they want, but your previous choices of paint aren't going to please the next owner. You don't know what that person will want. Paint is cheap, so many homebuyers repaint before they move in. The reason to repaint before selling is that the old paint no longer looks good. It's always better to have fresh paint in an inoffensive color scheme. It's easy to paint before you move in, so as long as the walls look nice, the buyer will think, "Well I don't like the color scheme, but everything is ready to paint anyhow."

There's a lot of psychology in buying and selling houses.

[LanternWaste]

29. Does that include or exclude staring down a carload of people visiting a neighbor?

"I don't care. It is not my house, already. The next owner gets to decide. I'm done with it."

Just an idle, speculative question... tmggf

[DenaliDemocrat]

7. Meh, it's just a time share

Not a big deal.

[marybourg]

9. They actually advertise on NPR. The ad says

something like “ the owner remains the owner”, but doesn’t mention that there are also 5 other owners.

[sanatanadharma]

14. It is a huge deal. that in the USA, homelessness and profitized time sharing coexist.

It is a huge deal that in the USA, homelessness and profitized time-sharing for the well off coexist.

That capitalist factors exist whereby those with wealth can drive up the costs of housing beyond affordability except for those with enough wealth to time share a second home from a single owner of a lakh* of houses (as though) is an ethical economic issue.

Wealth chasing more wealth or the even more illusive 'security', creates real insecurity for the majority.
For a lords-and-flies-free society that is a moral issue

*Lakh: Sanskrit word = 100,000

[XanaDUer2]

16. A co-worker with very modest income

kept having every house they tried to but bought for cash under them. We didn't understand what was going on.

[MineralMan]

18. We saw that happening where we were shopping, too.

However, our answer was to look at houses under our limit and then make a bid that was at our limit for one we liked. It was a cash purchase, besides, which helped.

We moved into it almost two months ago, and have our old house up for sale. Fortunately, we were able to buy for cash before selling our previous home. Others are in similar positions. It's not just corporations or real estate investors doing this.

The market is crazy, for sure, but we just changed our strategy and bought the first house we made an offer on. It took us a month to find a house that suited us that was listed for a price that made that possible. Our offer was 12% over the asking price and it was accepted, as I was sure it would be.

Lots of other people are doing the same thing if they want to buy. It works in a market like this one.

[XanaDUer2]

19. They were too poor to pay cash

they finally got a small house in Colorado.

[MineralMan]

20. Yes, it can be difficult in a market like this if

you can't pay cash for a home. However, the same strategy will still work if you have a loan pre-approval beforehand. Where it doesn't work is if you are planning to use an FHA or VA loan. Sellers won't wait for the long process both of those take.

It's a difficult market for buyers. No question about it. But, that's not because of corporate buyers. 95% of homes will be sold to individual buyers. It's just more difficult right now.

[haele]

25. I don't care what they call it, it's a timeshare...

How else can they control when the various share owners are able to spend their allotted hours there? If three share members want to stay at "Chardonnay" over the same period of time, who gets precedence? The LLC board will have to decide...

"Sorry Walter, it doesn't matter about that wildfire nearby making difficult to breath, you are scheduled for your 3-week stay this month. There are no openings for the next 200 days. No, the Jordans have all of November, I'm sorry..."

Timeshare. Wonder how they divvy up insurance and taxes, along with the management fees.

Haele

[Jilly_in_VA]

26. It comes down to a zoning issue, possibly

Time shares may be illegal, or can be made illegal, in certain zoning areas.