Rent-to-Own Proptech Divvy Gets Another $735 Million

Private equity investors obviously believe in the business model of Divvy Homes, a San Francisco-based start-up that partners with new homeowners in a proptech twist on the old lease-to-own model.

Divvy’s deal goes like this: The applicant fills out a short application and commits to an approved homebuying budget, the company buys the house, and the new renter contributes 1% to 2% as an initial down payment. Then, they keep adding to that kitty, with up to 25% of each monthly payment going toward the goal of building an eventual down payment of as much as 10% of the home’s value at the end of the three-year lease.

According to Divvy, renters can buy the home at any time or walk away with their savings if they change their minds, giving the consumer the flexibility of renting along with the wealth-building power of homeownership.

Nearly a billion dollars in capital commitment, a goal of financing 100,000 families

In an Oct. 12 announcement, Divvy Homes said it has attracted applications from more than 750,000 potential homeowners since its 2017 founding, as it moves toward a goal of helping more than 100,000 families become financially responsible homeowners in its first 10 years.

Divvy Homes said 2021 has been its best year yet for closing home purchases, and the capital markets seem to really like what they see. After announcing a $110 million debt and equity investment from Tiger Global Management this past winter and a $200 million funding round this summer, Divvy Homes said it has just entered into new debt facilities totaling $735 million.

“Securing this additional debt capacity, along with a substantial reduction in our cost of capital, allows Divvy to continue scaling homeowner accessibility for more Americans,” Tom Egan, CFO and head of capital markets, said in the Oct. 12 announcement.

Right now, those Americans can buy homes in the following 16 markets:

The Millionacres double bottom line

The company said about 47% of its customers have exercised their option to buy, which it claims is well above their competitors’ conversion rates.

“Divvy offers an alternative to those caught in the middle — those who don’t have enough savings for a down payment but are financially stable enough to afford a monthly payment on a house,” CEO and co-founder Adena Hefets said in the Oct. 12 announcement.

“We are thankful for our lenders’ support in helping us enable homeownership for more Americans. There is no question that there’s an urgent need to solve our country’s housing challenges,” Hefets said.

Even those who don’t end up buying the home benefit, it seems. The company said its customers save an average of $8,200 during the process. That’s about 10 times the median savings of renters in America, according to a 2017 study by the Joint Center for Housing Studies of Harvard University, Divvy said.

So, either way, whether they walk away with savings or a mortgage, they come out ahead in this real estate investment. Sounds like a good proposition — good enough to attract nearly a billion dollars now in private investment that expects to do good while doing good, too. A classic double bottom line.