🤿 Pacaso fundraising deep dive, the great unwinding, and Lineage

The Life and Deaths of Pacaso’s Retail Fundraising Offer

Pacaso recently announced that retail investors can now invest early in their rocket ship via a Regulation A+ offering and own shares of equity in the private company. The problem is that these offerings tend to be early red flags, especially when they’re not carved out of larger rounds, even with prominent people in the organization championing the initiative.  

Let’s take a closer look.  

What Does Pacaso Do?

Pacaso is a tech-enabled real estate marketplace designed to provide a streamlined experience for customers looking to buy luxury second homes through co-ownership in top markets across the country. Founded by Spencer Rascoff and Austin Allison, the company aims to address the challenges of high costs and the complexities of sole ownership of a second home.  

What does Regulation A+ Mean?

Regulation A+ is a securities offering that enables smaller companies to raise capital from the general public, including both accredited and non-accredited investors, without undergoing the full registration process of a traditional IPO. Created under Title IV of the 2012 Jumpstart Our Business Startups (JOBS) Act, it was designed to simplify fundraising for small businesses. 

There are two tiers under Regulation A+, but we will focus on Tier 2, the route Pacaso chose.

Tier 2 specifics:

1. Increased Raise Limit: Allows companies to raise up to $75 million in a 12-month period, vs $20M for Tier 1.
   

2. Less Regulatory Burden: Companies using Regulation A+ are subject to lighter reporting requirements than traditional IPOs, though Tier 2 offerings have more ongoing reporting obligations than Tier 1. 
   

3. Public Offering: Unlike private placements, Regulation A+ allows offerings to the general public.

How Pacaso Took Building in Public to the Next Level

Nothing says “let me think about it” like a confusing rollout. It all started with influential leaders from the company promoting the offering on social platforms. This quickly gained traction, as few in proptech have more credibility and reach than Rascoff (Zillow co-founder) and Allison (founder and CEO of dotloop). 

Pacaso has succeeded at building a world-class brand.

That was until they released a pitch deck that left everyone paying attention baffled, with internal Pacaso employees making comments on the public Google Slides deck, unsure of how to position the company.  Mike DelPrete, a real estate tech strategist, has a masterclass on this topic, and recommend you check it out. Before moving to the offering circular, we must highlight the two versions of the graphs from the deck — cumulative vs. annual. Retail investors deserve better and wonder if the SEC would view these comments in a positive light.  

Cumulative:

Annualized:

The Circular - Home to the Important Information 

Setting aside the questionable choices with the marketing deck, the Pacaso offering circular provides all the details necessary to make an informed decision. For the sake of brevity, we’ll focus on three critical areas: growth, cash on hand, and valuation. However, there’s much more to explore for those interested in digging deeper. One important topic that we are not covering are the active lawsuits trying to prohibit operations in very popular vacation home locations like Newport Beach, CA, and Sullivan’s Island, SC. To be clear, this is an attempt to block Pacaso from operating in their areas, not Pacaso committing a crime. It just highlights one more operating headwind, and the costs associated with being first.

Growth

The circular presents year-end figures through 2023, with the first alarming statistic being a 59% drop in top-line revenue. It’s fair to assume Pacaso, like many companies over the past 24 months, have optimized for efficiency.

Not quite. While they did reduce their net loss by 56% from ‘22 to ‘23, their overall performance worsened as a percentage from top to bottom. Some grace to the Pacaso Reg A+ promoters out there, as rocket ships do go up and down.

The company is also facing a growing churn issue. Resales of fractional units increased from 9 in 2021 to 191 in 2023. While it's positive to see recapture, the unfortunate reality is that resales are now outpacing new unit sales. With nearly 25% of units re-trading in less than three years, the entire investment thesis around customer lifetime value for Pacaso leadership must be a concern, especially if they used the historical average closer to 12 years for vacation homes.

Worth noting - this bucket for resales does include “other” sales per the circular. That said, they’ve lost roughly 10% on “opportunistic sales” suggesting it was more of a distress to the balance sheet sale than a unique opportunity to flip for profit.

With market appreciation slowing and owners now having gone through more than one annual assessment, the question arises: will they hold on or view this Regulation A+ offering as a potential risk to their financial position and increase churn? If so, Pacaso is their own market maker. This puts pressure on them to now try and find breakeven re-trades after promoting their better than market appreciation numbers earlier this year while distracting the team from adding net-new units.

Cash on Hand

From what’s publicly available (chart below), they’ve raised roughly $217 million at a peak valuation of 1.5B. Chances are there’s some undisclosed capital but let’s stick to what we can access.

They’ve burned roughly $161M through year end 2023 based on their financials from the circular.

Assuming 2024 performs slightly better than 2023 — a debatable point given the senior executive turnover — they would burn through another $35 million, leaving around $21 million in cash from prior equity fundraising. With a current burn rate of around $2.9 million per month, that equates to just over seven months of runway in 2025 without additional funds from the Regulation A+ offering. That is unless they access credit lines or other funding sources, assuming the business, worst-case scenario, remains flat. We also ignore the latest round from Maveron (unattributed VC) for $13.36M that could be additional runway to extend this timeline.

Valuation 

In 2021, Pacaso was hailed by some as the fastest startup to achieve unicorn status because of its impressive fundraising. But to grasp how inflated this valuation was, let's revisit their 2021 year-end financials. They reported $127 million in revenue, with $98 million tied to the cost of revenue, leaving them with a gross profit of $28.7 million. Simply put, the business bought and sold nearly $98 million in real estate and made $28.7 million, which can be seen as their true top-line revenue. While I understand the accounting, Pacaso isn't building these homes — it's essentially an asset swap with limited value creation.

At $28.7 million, Pacaso was valued at 52x revenue — for a tech-enabled services company. Even more concerning, their gross margins are actually worse after three years of operations and consolidation.

Bottom Line

This looks less like a great opportunity for retail investors and more like a strategic move for Pacaso to secure a bridge round in hopes of extending their runway beyond 2025. If they can improve fundamentals and meaningfully grow recurring revenue (which they have some interesting ideas e.g. Pacaso Now), a down round could be in their future, but it will be a very challenging road ahead.  Beyond that, the challenge remains in growing into their lofty 2021 valuation with a 20% margin business where the majority of the revenue is transactional. 

This looks more like the Titanic than the Starship for retail investors. However, since we do not give out investment advice and simply share our opinion, we suggest you visit Pacaso’s dedicated page for more information.

Fundraise aside, we wish them the best. They have built a world class brand with plenty of very talented people trying to unlock second home memories for more.

Younger Workers Drive Shift to Rural Areas and Smaller Cities

Super star cities get all the attention, and in the decades between 1980 and 2020 young people migrated in droves to these large metros, powering the burgeoning service economy and supercharging the real estate markets in places like San Francisco, Boston, New York, Washington, DC, and Los Angeles. 

But in the last few years young adults have been moving to smaller cities and rural areas in numbers not seen in over a century.

These are the findings of Hamilton Lombard, a demographer at the University of Virginia Weldon Cooper Center for Public Service, who says this shift is particularly noticeable in Southern Appalachia, a region that is attracting remote workers who are moving there for cheaper housing and a better quality of life.

Lombard identified a number of cities and counties across the region that are drawing younger workers, including: Knoxville, Tenn., Spartanburg, SC, Pickens County, SC, Bristol, Tenn., and parts of western North Carolina.

“Southern Appalachia is a big place and they are looking for people to move in,” Lombard said. “And many of these towns are attractive places to live with affordable housing.”

There is an upside for investors and developers who are looking to buy in these areas, Lombard notes.

“Most of these areas are historically easier to build in,” he said.

One of the drivers of this shift is that most companies have learned to accept remote work as part of how they will be doing business for the foreseeable future.

“People are coming from Florida and California,” he said. “Some of them are digital nomads.”

And there are no signs that this shift is letting up, according to Lombard’s recent post on Statchat:

Forget Climate Refugees. At Least for Now.

In the wake of the recent hurricanes in Florida, there were the inevitable anecdotal media reports of those ready to pack it in and move back north — and there is evidence that some Floridians have resettled in Southern Appalachia. Florida’s population growth has slowed, but declining affordability, high property taxes, overcrowding and high home insurance costs are more likely to blame than climate change.

But still, reporters like the climate narrative.

“Two hurricanes in a row have tapped me out mentally, and almost, financially,” one St. Petersburg resident told NBC News on Oct. 11. But this was a 60-year-old woman from Illinois, who had moved in six years before, and said her old job was waiting for her back in Illinois.

The New York Times took up the subject as well, with a story headlined: As Florida Storms Worsen, Some in Tampa Bay Wonder: Is Living There Worth It? 

For many with deep ties to Florida, the answer is yes and they have no intention of leaving.

But home insurance costs might force some out. As proptext wrote in in Issue #3, home insurance costs in Florida are the highest in the country, “the result of overbuilding, rampant fraud, and criminal neglect in land-use planning.” Meanwhile, replacement costs after storms hit have jumped as well. 

A Redfin survey found that almost 12% of Floridians who plan to move in the next year cited rising insurance costs as a reason — almost double the national share of 6.2%. In California, 13% of people who intend to relocate cited natural disasters or climate risks as a reason, compared with 8.8% of respondents nationwide. 

But the prevailing attitude is summed up by one resident of Longboat Key who told an NPR reporter on Oct. 14:

“When I first came back into my place, I just got emotional because I was so overwhelmed. But then after a while cleaning up, I realized, 'No, look at this. This is paradise here’,” said Sharon Austin, who moved to Longboat Key from Chicago earlier this year. “This made it through two hurricanes. The foundation is still standing. I most definitely will stay and rebuild. And most of the owners feel the same way.”

Lombard said the data does not show outward migration from Florida.

“If you are thinking about climate change and migration — maybe people would start relocating because of climate change,” he said. “But we’re not seeing that.”

Hurricane Helene disproved the notion of a “climate haven,” as Asheville, NC, can attest. The city has boomed in recent years, as many saw it as a beautiful area — coincidentally in the Southern Appalachians Blue Ridge range — with a diverse cultural scene, terrific restaurants and affordable housing. (Was affordable: average median sale price is now $500,000, well above the average median in the US of $432,000.)

The mountainous region of western North Carolina and eastern Tennessee was slammed by 15-20 inches of rain at the end of September, triggering mudslides, swelling rivers over their banks and knocking out power. At least 95 people were killed, many still lack running water and power, and repairs to local roads will take many months.

Real Estate Opportunities in Southern Appalachia

Unlike Phoenix or Columbus, Ohio, which are benefiting from the largesse from the Inflation Reduction Act in the form of billion dollar high-tech chip factories, the cities and towns in the southern tier of the Appalachian Mountains are not hotbeds of tech innovation. 

But they do offer attractive places to live with multiple recreational opportunities and homes selling for less than $400,000.

Lombard mentioned that Knoxville draws remote workers, and the city’s housing market has been red hot. The median home sale price was $174,000 back in April of 2020. As of August of 2024, that number was $323,000, up 7.1% in the last year. (The median rent for a single-family rental is $2,065 as of October of 2024.)

Southern Appalachia has also attracted “halfbacks” — retirees who moved from the Northeast and Midwest down to Florida, then headed north and settled “halfway back to home.” (AARP magazine wrote about halfbacks back in 2018.) The lures are lower housing costs, lower taxes, lower insurance costs, low crime, relatively warm seasonal weather and less chance of hurricanes.

According to a Wall Street Journal story from March, the boomer migration to North Georgia, East Tennessee, the Carolinas and western Virginia is boosting home prices, snarling traffic, and spurring a new restaurant scene. Local governments are coping with an unfamiliar problem: explosive growth.

From April 2020 to July 2022, the population in counties in southern Appalachia designated retirement or recreational areas grew by 3.8% — more than six times the national average, according to Lombard.

More than 60% of the top moved-to cities are located in the Southern Appalachian region, and North Carolina, South Carolina lead the way in 2024. The Myrtle Beach, SC/Wilmington, NC, area was the number one most moved-to city for the second year in a row. The Greenville-Spartanburg metro area was #4 on that list and Knoxville was #8.

Our take at proptext.co is that investors who are looking for opportunities outside the Sunbelt and cities like Houston, Phoenix, Jacksonville and Austin — places that have been the focus of institutional buyers — the Southern Appalachian region is a good place to start.

Castle Rock Lake, Wisconsin

Castle Rock Lake in central Wisconsin offers a compelling case for real estate investors, especially those interested in short-term rentals (STR). With Wisconsin’s fourth-largest lake, spanning 14,000 acres, it’s a popular destination for boating, fishing, and other outdoor activities, attracting tourists year-round. 

Castle Rock Lake and the surrounding counties, Juneau and Adams, have seen steady demand for both vacation rentals and second homes. Home values in this region are more affordable than other lakefront destinations, making it accessible to a broad range of investors. Lakefront homes can be found for around $700,000. 

Affordable land around Castle Rock Lake is another draw. Small wooded lots (0.51 acres) with direct access to outdoor amenities can be found for $50,000. These properties also typically come without restrictive covenants, which allows for flexibility in STR development​. With its proximity to major cities like Madison, Milwaukee, and Chicago, the lake region attracts weekend travelers, further stabilizing rental demand.

Average home value comes in at $256,913 and with average annual revenues for STR at $55,111 from an occupancy rate of 48% and an average daily rate of $412. 

Amenities & Bedroom count

Only 11% of supply at Castle Rock Lake is a one bedroom opening up the opportunity to compete with a tiny home offering or studio. On the amenity front, having a hot tub installed might cost $8-10k, but could generate up to $30k in incremental bookings.

2108 Wigwam Street

Discover this pristine 3-bedroom, 2-bath log home just a short stroll from Castle Rock Lake! With an additional sleeping area in the loft, there’s plenty of space for family and friends after a day on the water. The spacious, oversized kitchen island is perfect for gathering while dinner is prepared, or step outside to grill on the expansive wrap-around deck. Unwind in the 3-season room or around the campfire as you take in the sunset. Cozy up by the fireplace in winter as you watch deer wander across your nearly acre-sized property. Features like in-floor heating, a walk-in shower, gas range, fireplace, and wine fridge make this an ideal getaway or year-round retreat. Mostly furnished, this home is nearly turn-key.

The Investment Thesis

→ At $49k in revenue, adding amenities like a hot tub could add incremental revenue to an already attractive yield.
→ Madison WI is a 1.5 hour drive. Madison itself is growing population at 4.4% in 2023 well above national average.
→ Other large population centers like Green Bay, Milwaukee and Minneapolis are all a 3-4 hour drive to Castle Rock Lake fueling demand for short term rentals.

 Property Details

 Financial Projections

Interested in Learning More?

*Appreciation based on 4.5% growth rate. 

Wall Street Vet Now Fills Her Days With Real Estate

Beth Ferraro has a fond memory from her childhood associated with real estate, after her parents built a gym from the ground up to house their gymnastics school in Norwood, Mass.

“It was an exciting thing, I remember the opening party for it — with the little finger sandwiches. I was about 12 and at an impressionable age,” Ferraro recalled. “Coming from a family with seven girls, we didn’t go out to dinner a lot.” 

From a childhood of competitive gymnastics as the second youngest of those seven sisters, Ferraro took up diving in college at Clark University, where she was a Division III All-American for three years. After graduation, she worked at Boston Consulting Group in Boston for three years, then moved to New York to get an MBA at New York University.

She landed on Wall Street in the bad old days when traders would hire strippers to visit the trading floor. 

“I liked the work but I didn’t like the environment so switched to the buy side,” Ferraro said. In the early 2000s, when two of her boys were young — a third would be born shortly after — she moved to a smaller asset manager, a job that gave her more flexibility

Her first intentional purchase of a rental property was on Cape Cod, where she and her husband had visited during summers growing up. She got the idea after attending a sister’s wedding on the Cape. The property in Orleans had a main house and a small guest cottage, and she and her family were constantly taking on little projects to fix up the properties. She did a major renovation of the main house from 2018-2020.

“The rentals covered the mortgage 100 percent,” she said. “My main goal has always been that if I can cover my expenses I’m good.”

Eventually five of her six sisters also bought near her in the Cape, using the same playbook of fixing up an older property and renting it out to cover expenses. 

She bought a house in Bonita Springs, Florida, in 2016, renting it to pay for the mortgage and membership fees. She bought a wreck of an apartment a few years ago on the 17th floor of her building on the Upper East Side of Manhattan, renovated it and moved in, renting out her old apartment on the 7th floor.

Ferraro left her Wall Street job in 2019, intending to take a year’s sabbatical, but has decided not to go back. Aside from her portfolio, she manages four properties her parents own, two houses outside Boston, one in Florida, and a ski house at Cannon Mountain in New Hampshire. 

“I want to buy in places that I like to be but we love our vacations going to other places,” Ferraro said, who has taken family trips all over the world. “Some people buy a vacation property and they only go there and they feel trapped. I never feel that way.”

This interview has been edited and condensed for clarity.

What is your special real estate power?

Vision. The vision to see the potential, to be able to see what a place can become. I can walk into a place and I can see beyond the current status — it can seem kind of dumpy and I can see what it can be. I’m a realist and I understand it’s going to take a lot of time but I’m not afraid to get my hands dirty.

What was the hardest lesson you learned early on in your real estate journey, and how did you overcome that and persevere?

Working with a contractor can be very difficult. It’s a really hard thing because construction is not an exact science. These guys are not business people — they are artists. You have to over communicate and stay on top of things and be present when decisions need to be made. Stuff with contractors always happens. Everybody has a saga. It’s not like I’ve conquered it but I’ve tried to manage it. Separate individual jobs are not usually a problem, but with your big general contracting jobs and you are coordinating different trades, that’s when the problems occur.

What advice would you offer to somebody looking to get into real estate or grow a portfolio?

There are so many aspects to it. You can buy an apartment in New York City and rent it out and that’s the easiest thing. I think if you are looking to grow a portfolio, location and your proximity to that location is key. I want to build my real estate portfolio in New York City, Cape Cod and Florida where I already have properties. I think it’s a good time to add a place in the Florida development where I own. Local knowledge makes a big difference — you have to know the right people to call. If your furnace goes out you have to know who to call. 

Among the strategies a property owner could pursue — long-term rental, mid-term rental or short term, (Airbnb), co-living — what works best for you, and why?

That really depends on where. In New York City,  I have a long-term tenant. In Cape Cod I love my summer weekly rentals and make a premium off those. People have been coming back to me for 15 years. In Florida, people like the monthly rentals. I don’t put my properties on Airbnb or VRBO — they gouge and they don’t let you talk to potential renters. There are so many bad stories. I do my rentals on WeNeedaVacation, which only does the Cape, Nantucket and Martha’s Vineyard. [Her cottage rents for $1,600 to $1,950 a week in the peak summer season.] In Florida, I use the community’s web site where my home is.

What do you think is the biggest issue investors face in 2024 and beyond?

In 2024, it’s the high interest rates. Now that the Fed is easing rates that should provide some relief. The market could not appreciate in some areas because of the high interest rate environment. I think aging buildings are another issue — you have a good handle on the maintenance aspect of it and make sure you are up to code. You need to know about the new building materials out there, the use of LED lights, and be aware of carbon emissions. That’s what keeps me interested — learning about the new materials out there and fixing up older properties.

Lineage

Real estate has always been a path to wealth, but for many, accessing the tools needed for long-term success has been a challenge. Enter Lineage—an asset management platform that’s transforming how investors build residential real estate portfolios and how property managers serve their clients. By seamlessly blending technology with a personalized wealth plan, Lineage supports investors at every stage of their journey. With a mission to create a trusted path to generational wealth, Lineage aligns perfectly with our vision at prop.text, and we’re excited to introduce them to our readers.

How It All Started

In real estate, it’s easy to get caught up in the properties themselves. While selecting the right assets is essential, the real long-term value lies in strategic planning and optimization. This is something Ron Phillips, Lineage’s co-founder and CEO, realized over a 20+ year career helping investors nationwide build real estate portfolios. As his relationships with clients deepened, Ron identified a glaring gap in the market: residential real estate investors lacked access to the kind of institutional-quality asset management services that are common in other asset classes.

“Every year, we’d conduct an annual review with our clients, but there wasn’t a tool that could accurately capture all the financial components of real estate investing and plan for future acquisitions… so I started building the tool myself,” Phillips said.

Lineage is the evolution of that initial product, changing the real estate investment landscape by partnering with a trusted network of professional property managers and individual investors. The goal? To shift the focus from "house picking"—the equivalent of stock picking—to sustainable, long-term wealth generation.

How Is Asset Management Different from Property Management?

While property management handles daily tasks like maintenance, leasing, and collections, asset management brings a strategic layer that can significantly boost overall returns. Lineage takes this approach further by offering expert guidance on insurance through master policies, delivering detailed performance reports to identify the best times to sell or rebalance, and recommending tax strategies that optimize cost segregation and depreciation. Additionally, Lineage’s integrated marketplace simplifies the process of lending, buying, holding, and selling properties, streamlining the entire investment lifecycle.

An exceptional asset manager doesn’t just maintain a portfolio; they actively apply these strategies across all assets, often unlocking value that goes far beyond what’s forecasted in a basic pro forma. Lineage empowers property managers and investors alike to achieve this level of optimization and scale.

By blending historical data with forward-looking projections, Lineage enhances investors' chances of meeting and exceeding their long-term financial goals—an opportunity that has traditionally been out of reach for individual residential investors.

How Does Lineage Work?

Lineage serves both property managers and individual investors, but the core focus today is empowering professional property managers by integrating Lineage’s platform into their tech stack.

The key value lies in enhanced portfolio performance reporting and planning services, delivered through seamless tech integration into the property manager’s toolkit. This not only provides immediate value to their entire customer base but also differentiates them from traditional service providers. Additionally, Lineage offers an integrated services marketplace, delivering white-glove support for custom insurance, buying, selling, lending, and tax services.

“Lineage combines high-touch, white-glove service with advanced technology because we all know individual investors require a different level of service than institutions buying homes in bulk,” said Phillips. “For individual investors, those incremental gains make all the difference.”

How Lineage is Changing the Game

In conversations with the Lineage team, it’s clear that their North Star is helping property managers build more resilient, growth-oriented businesses that stand out from traditional service providers.

By delivering clear performance reporting on full returns and educating both property managers and rental property owners about their financial goals, Lineage is shifting the relationship from transactional to transformational. As Phillips explains:

“Imagine if your property manager called once a year and said, ‘Congratulations, you made $80k in appreciation this year. We might need to invest some money in fixing the refrigerator soon, but you’re well on your way.’”

Our Take

Lineage is offering exactly what the real estate industry needs, and we’re excited to follow their journey. When we asked Ron what success looks like for Lineage in the next 18-24 months, he replied:

“When Lineage turns every property manager into an asset manager, and every rental property owner into an investor.”

To learn more about how Lineage can elevate your property management or investment strategy, check them out today.

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