Understanding LLC co-ownership
Can Pacaso raise monthly operating expenses?
All operating expenses are passed through at cost, and all cost statements are available to owners upon request. Pacaso cannot increase its fees without cause. As the LLC manager, we will only increase what is collected from owners as necessary to cover a change in household expenses (e.g., an increase in insurance rates).
Does the Pacaso management fee go up each year?
No, our management fee is a fixed $99 per month.
Can Pacaso make changes to the owner operating agreement?
Material changes require an ownership vote. Pacaso has limited authority to make non-material changes (e.g., change of address for state reporting purposes) on behalf of the ownership group.
Where do the reserve funds go and how are funds used?
Reserve funds are held in the individual LLC's bank account, managed by Pacaso. Funds are only used for the home’s repairs and maintenance. When the need for a major repair arises, Pacaso will allocate funds after a transparent competitive bid process.
What services are provided for Pacaso second home owners?
Pacaso provides an array of services, including ongoing maintenance and property management; aggregating and managing monthly owner expenses and taxes; overseeing the LLC and resolving any disputes; continually innovating and improving the Pacaso app and other digital technology; and providing dedicated owner support, 365 days a year.
Can Pacaso borrow against the property’s LLC?
Other than for the purpose of securing a mortgage for the owners, Pacaso can not borrow against or encumber the LLC in any way.
How does voting work? How do owners call for a vote?
Every share owned holds a vote. Owners can bring major issues about their home to a vote of the group (e.g., a decision to upgrade the sound system). To call for a vote, notify the Pacaso Crew member who represents your home.
What kind of LLC does Pacaso create?
We use a multi-member manager-managed LLC. These LLCs are a unified front that represent and protect a group of buyers. Each LLC has its own bank account, tax ID number and holds title to the Pacaso Home.
Is Pacaso ownership the same as a Tenancy in Common (TIC)?
No. With a TIC, each owner’s name is on the deed, which requires a formal real estate closing and recording of a new deed each time a share is sold. With Pacaso, owners purchase a share in a property-specific, multi-member LLC, and the LLC is the singular deeded owner of the home. The LLC structure is widely adopted for residential and commercial real estate.
Can owners use an LLC trust to purchase their Pacaso?
Yes. Owners can close under an LLC, trust or use their legal name, subject to compliance with the details in the Pacaso Home Documents.
What if another owner defaults? How does Pacaso protect me as an owner?
Pacaso serves as the corporate guarantor of any share financing, protecting you should another owner default. In the unfortunate event of an owner default, Pacaso will step in to service the loan. If not resolved within 90 days, we will foreclose on that specific share and manage the resale without any disruption to the ownership group.
Does Pacaso pay the legal fees if the LLC is sued?
Legal expenses, to the extent incurred on behalf of the LLC, may be passed through to the owners as a Basic Expense of the LLC. Each home has a homeowners liability insurance policy of up to $2 million.
Can an individual owner be held liable?
Generally, to the extent such costs are not covered by insurance, the LLC indemnifies owners acting on behalf of the LLC in good faith and in accordance with the LLC operating agreement. Owners who act on behalf of the LLC with gross negligence or willful misconduct, or violate of the terms of the LLC operating agreement, will not be indemnified by the LLC.
Can owners decide to run the LLC without Pacaso?
Pacaso works at the service of its owners. If owners decide that Pacaso is not providing adequate service, the owner group can vote to remove Pacaso as the program manager of the home and self-manage the property.
Can Pacaso stop me from selling?
No, owners may sell at any time after 12 months of ownership. You set your own price, and Pacaso will list and market your share much like a whole home sale.
Can Pacaso sell the entire property?
Pacaso can sell the entire property in the unlikely event that more than three shares are in default for more than 90 days, and the shares fail to sell for the loan-to-value ratio of 50%. Before a property can be sold, each owner will have the right to purchase the defaulted shares at a discount.
What is considered a “routine matter” that Pacaso can resolve without ownership voting?
Routine matters are minor repairs to keep the home in owner-ready condition. Examples are ongoing home maintenance like winterizing a deck or replacing a broken dishwasher.
Who is responsible if something breaks?
Owners are not individually responsible for life-limited items that eventually need repair or replacement, like a dishwasher; those are paid for by the LLC reserve fund. However, each owner is responsible for replacing or repairing items damaged as a result of their actions, such as a broken window.
What happens if zoning laws change?
Pacaso would step in and advocate on behalf of the LLC. However, this is very unlikely. Many second home markets are comprised of LLC-owned properties. We do not anticipate local zoning laws to change, given it would disrupt many households in many markets.
Can owners themselves borrow against their share in a Pacaso?
No, this is not permitted per the terms of our operating agreement.
How can owners use the reserve funds?
Owners have the right to use the reserve funds for replacing life-limited items (e.g., washers and dryers or roofs) and/or can request a vote to use funds to add or replace items in and around the house (e.g., upgrading the sound system).
How is the deed recorded?
The deed for each property is recorded in the name of a property-specific LLC. Each owner holds their interest through the LLC, which provides for both privacy and liability protection.
Ownership transfer and resale
How does ownership transfer work?
As a benefit to owners, we offer a one-time option to transfer ownership to another Pacaso during the first 12 months after you close on your purchase.
Can I transfer ownership to another Pacaso at any time?
Pacaso's transfer benefit can be used only during your first 12 months of ownership. You will then have a 30-day grace period to take advantage of the option, after which your transfer option will be forfeited (but you can still resell your share on the open market).
Can I transfer ownership more than once?
No, this is a one-time benefit for owners.
Does Pacaso charge a transfer fee?
No, there is no transfer fee and Pacaso is not making a profit on the transaction. This option is provided as a benefit to owners.
Does my ownership transfer immediately, or do I have to wait for my original share to be resold?
Ownership transfers immediately, so you can start booking time in your new Pacaso right away.
How will an ownership transfer affect my available stay nights?
Your stay nights will reset, and the transfer date will be your new ownership anniversary date.
I want to transfer my ownership to a less expensive home. How does that work?
The price difference will be applied as a credit toward your owner operating expenses for up to 3 years. If any credit remains after 3 years, you’ll receive a refund for the balance.
I want to transfer my ownership to a more expensive home. How does that work?
You will pay the difference in price. For example, if your original purchase price was $450,000, and your new home share price is $550,000, you will pay $100,000.
Can I finance the price difference if I transfer to a more expensive home?
Yes, eligible buyers can use our financing partner to finance the difference in share price.
How does transferring ownership affect my taxes?
The transaction is tax free. You will receive a final K-1 tax form for your original LLC and an additional K-1 at the end of the year for the new LLC.
How does Pacaso resale work?
After 12 months of ownership, any Pacaso owner can choose to sell their ownership interest, at any time. Each owner has independent control over the sale and price of their share. Pacaso will provide you with a current comparative market analysis (CMA) for your ownership interest, which you can use to help set your price. Pacaso will assist in the sale process by tapping into its existing marketplace of buyers (some homes even have waitlists) and marketing the home on Pacaso and third-party websites. Closing is fast and streamlined.
Can a Pacaso owner really choose any sale price for their share?
Pacaso recommends a market price, but the seller makes the final call.
Can buyers negotiate the sale price an owner has set?
Yes, we think of the resale marketplace as fluid and moving in line with the open market, so buyers are welcome to bring offers. The seller can choose to accept or decline any offer.
What happens if my share isn’t selling?
In addition to listing the home on Pacaso and third-party websites, Pacaso will actively market the share, which may include hosting open houses and promoting the listing through email or direct mail marketing. If we’re not seeing buyer interest despite these marketing efforts, we might recommend lowering the asking price.
Are there closing costs, commissions or other transaction fees for Pacaso owners who sell their shares?
For the seller, a standard commission fee is deducted from the final sale price. For the buyer, there are no title, inspection or service fees on resale transactions. Buyers fund the first six months of their home’s operating expenses at closing, similar to property tax and insurance “prepaids” in a traditional sale. Buyers who choose to finance their purchase also pay a financing fee at closing.