By Meghan Hall
For decades, much of the “American Dream” has been defined by the ability to own a home. In many markets, that dream has slipped further away as the cost of housing rises and wages fail to keep pace. For those at Divvy, a rent-to-own platform, many real estate-related technologies have digitized commercial real estate processes, but few have made them accessible to the wider population. The Registry spoke with Divvy’s Co-Founder and CEO, Adena Hefets, about how the platform is opening up the opportunity of homeownership for Americans across the country.
Please tell The Registry a little bit about Divvy. Why do you think the platform’s model—which buys houses for potential homeowners and rents it back to them while they build equity—can help change the path to homeownership?
We founded Divvy in 2017 to support future homeowners by purchasing a home on their behalf and renting it back to them while they build equity in the property and save up for a down payment. To date, we’ve raised over $500 million in total funding to give more Americans the opportunity to own a home, and in doing so, have created a new method for homeownership for those who have traditionally been excluded from traditional mortgages. We currently offer our program in 16 major metropolitan areas across the country, including Atlanta, GA; Cincinnati, OH; Cleveland, OH; Dallas, TX; Denver, CO; Ft Lauderdale, FL; Houston, TX; Jacksonville, FL; Memphis, TN; Minneapolis, MN; Miami, FL; Orlando, FL; Phoenix, AZ; San Antonio, TX; St. Louis, MO; and Tampa, FL.
Our mission at Divvy is to fundamentally change who has access to the security and wealth offered by homeownership—a foundation of the American Dream. The Divvy application process focuses less on the customer’s current mortgage-readiness, and more on their potential to qualify in the future—with the right support. This way, Divvy customers can enjoy the home they love now while they build up savings. Customers are also able to access free credit counseling to help them get their credit profile in order before applying for a mortgage. Whereas much of early real estate tech stopped at simply digitizing the archaic, data-heavy processes buyers and banks encounter around real estate transactions, Divvy is actually driving the industry forward by opening it up to those who haven’t had access to it before.
Financially speaking, is this more cost effective for new homeowners in the long run? If so, how?
The Divvy program helps customers save up for a down payment, and therefore their total monthly payments are often higher than market rent alone. Roughly 25 percent of their monthly payment goes into “home savings” — money they’ll use toward their future down payment. Customers build up a 10 percent down payment over just 3 years, accelerating their savings rate compared to what most would achieve on their own, if at all. Those monthly savings also benefit from a higher yield—the savings appreciate at the rate of the home. This way, customers can benefit from the investment of a property before they own one.
For our customers, a larger down payment means they can apply for a mortgage loan sooner, and a strong mortgage loan equates to lower payments in the long run. What’s more, a more substantial down payment provides far more mortgage options down the line: a fixed rate versus adjustable, better loan terms, etc.
While payments with Divvy will likely be higher than those of a mortgage (as any rental payment would be in most markets), the high probability of having access to the fixed low cost of a mortgage within three years makes Divvy a far more cost-effective option for the customer than attempting to save on their own, which will take many years if successful at all. Customers can also benefit from pre-agreed buyback pricing, meaning they’ll pay the agreed price regardless of how much the home has appreciated. Plus, with our program, they get to live in the home they love and enjoy its access to benefits like security and high-quality education for their children now.
How is Divvy different from the traditional lending process?
Rather than extending credit to people, we let customers pick out a home they would eventually want to own and buy the house for them. The customer rents from Divvy while automatically building their savings so they can buy the home back within three years. If the customer changes their mind or can’t get a mortgage, they can cash out their home savings, minus a relisting fee. Overall, it creates more flexibility and opens up access to homeownership for people who are locked out of the traditional lending process.
What kinds of characteristics does Divvy look for when selecting potential homeowners for its program?
Our customers are deserving people who have been shut out of homeownership because the system wasn’t designed for them, not because they can’t actually afford it. They are families, immigrants, people with multiple income sources, millennials, and others who have complex finances and are underserved by traditional mortgages. Teachers, nurses, and many other essential members of our communities are among the groups who benefit the most from the Divvy model.
Divvy states that it is straying from the “typical Silicon Valley model.” For those who are unfamiliar, what is the usual Silicon Valley model, and what specific steps is Divvy taking as a company and platform to move away from this mode of business?
Typical Silicon Valley companies create products built to serve other Silicon Valley companies or their relatively high-net-worth employees and communities. Divvy instead serves everyday Americans who deserve access to the nation’s greatest wealth builder. Ultimately, we want to make homeownership more accessible to as many people as possible and know our model could make the most impact on communities beyond the usual tech hubs like San Francisco and New York.
From your perspective how has the coronavirus pandemic impacted buyers’ ability to invest in a new home?
The impacts of COVID-19 caused mortgage rates to drop to historic lows in 2020, which should’ve led to mortgages becoming more affordable and therefore more accessible. But instead of making it easier to buy a home, many banks tightened underwriting requirements for approvals by raising credit score and down payment requirements. Divvy is an alternative for those who are being shut out of the mortgage market by these increasingly exclusive requirements. With Divvy, homebuyers without perfect financial pasts can still access homes they want to live in now while building towards mortgage readiness over time.
Divvy recently announced $110 million in Series C funding, and to date has raised over $500 million. How does Divvy plan to utilize these funds? Why?
With this capital, we plan to further market expansion and launch adjacent product offerings to create a seamless end-to-end homebuying experience.
What markets does Divvy plan to target next and why?
While we aren’t ready to announce what markets we will be launching in next, we can say that we plan to operate in over 20 markets by the end of the year.
Looking ahead into 2021, what fundamentals are you tracking in the national housing market? Why?
In addition to trends in prices, we’re also looking closely at inventory levels and average days on market in our different cities. We think there’s a high probability that the competition we’re seeing right now will remain strong and possibly increase throughout this year, and are constantly thinking about how we can better serve our customers by making them more competitive when they shop for their dream home.