Who never dreamed of a vacation home near the beach or mountains?
A “stopper” for most people is the price and hassle of maintaining such a property.
Startups like Pacaso are trying to solve this with fractional ownership.
I deep-dived into it and hired a researcher to help make me a list of 100+ startups doing something similar.
The list looks like this:
Let me share with you some discoveries that surprised me.
But first things first.
What is fractional ownership?
Instead of owning and managing one vacation rental, you own just a fraction of it, and someone else takes all the hassle of property management.
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These startups are replacing:
- 🔍 Real estate agent - they source the properties
- ⚖️ Attorney - transparent (usually) and standardized contract
- 🏦 Mortgage advisor - helping you with financing if needed
- 🧹 Property management company - taking care of the maintenance and renting it on platforms like Airbnb
When I looked at the websites of these startups, they always fit one of these 3 categories:
1. “Own a second home” (34 out of 110 startups on my list)
- It’s about owning a property that you can use, let’s say, 1/8 of the year
- Often targeting also people who play status games - you want to show your friends that epic villa at Lake Tahoe (nobody is questioning how much of that house you own)
- To me, these properties look like terrible investments (usually overpriced premium real estate) with high monthly costs (a fee you pay to the property management company every month, and it is technically challenging to change this company)
- You dream of making some money with appreciation
- Examples: Pacaso, Kocomo
2. “Own a second home and rent it on Airbnb”(42 out of 110)
- The same as the previous category, but the property can be rented on Airbnb when you are not using it
- This is all managed by the startup, and you can gain some “profits”
- Looking at the numbers, those profits can partially cover the costs of the monthly maintenance payments
- Examples: Ember Home, LaHaus
3. “Invest into a vacation rental to create a passive income”(33 out of 110)
- This category is the main reason I started this research
- Startups in this category focus on finding good real estate deals, then they optimize the rental income on platforms like VRBO/Airbnb, and they report to you how much you make every month
- This investment can be typically lower and is a kind of alternative to owning stocks on Robinhood
- Examples: Arrived Homes, Fraction
Opportunities 💪
- Startups that can make investing in real estate as easy as buying stocks on Robinhood can crash it. This will require an insane amount of VC money to build credibility.
- But there are many opportunities to build a massive business in a small niche (location, type of property, the complexity of the investment, etc.)
- A perfect example is 21-5 where 21 families who own five large vacation homes - targeting investors in Nordics/Germany, with properties in Italy, Spain, and France.
- Fractional ownership with friends might be a great idea or a total nightmare - there should be a startup facilitating it for a group of friends (excellent blog post about it)
- Update: there a few (thanks Drew for a tip!): Pairadime and CoBuy
- I haven’t seen this applied to hotels where I see a huge opportunity - I would rather invest 5k into co-owning a hotel than a vacation home
- Fractional ownership might be a new tool for mature property management companies to create a new revenue stream
- A common way to gain residency in new countries is to buy real estate - fractional ownership might be a loophole to apply for residency with way lower costs
- Short-term rentals are (or soon will be) illegal in many prime tourist destinations - with fractional ownership, the co-owners and their friends (let's call them “ club members”) can rent a property that is technically not a vacation rental business
- Strong vacation rental brands like Wander will create their own REIT funds
Let me know if you are building something interesting in this niche.
Also, if you are interested in the list of those startups, you can access it here.
