“Divvy is a fractional homeownership company,” said Adena Hefets, co-founder of the San Francisco-based real estate tech startup that is focused on three markets east of the Mississippi: Memphis, Atlanta and Cleveland.
Neither renting nor owning is the future of the housing market, but “some combination of both,” according to Hefets. “In most single-family rental businesses the landlord is seen as an adversary. We want to be seen as a partner with the renter.”
The Divvy Homes model involves buying homes for prospective homeowners who can’t afford or qualify to buy. The company then rents the property back to that prospective homeowner for three years, during which time the renter builds up equity credits that can be used toward buying the home from Divvy at a pre-set price.
Rooted in a Personal Story
Hefets experienced the wealth-building effect of homeownership from an early age.
“For me it’s a personal story. My parents were immigrants and came here without any money … The only way we made any money was we invested in rental properties. There is this amazing risk-adjusted return you can get with owning a home … and start to build wealth over time,” she said, adding that many missed out on that wealth-building opportunity in the wake of the Great Recession. “The wealthy saw tremendous wealth gain over the last decade, and the middle class did not. … they were left out of this giant period of economic prosperity for the U.S.”
Although Divvy’s business model may appear markedly different than a traditional SFR operation, Hefets said that the company makes money the same way — at least for now.
“We make money like any other rental platform; we make it off rent yields … we are very selective about the markets we move into to make sure they have enough rent yield,” she said, noting that the company has future plans for additional revenue streams. “If Divvy helps you buy your home, don’t you think Divvy will be a trusted partner for other things? There is a lot of ways to monetize the largest asset for most people. We don’t think the relationship will end when they become a homeowner.”
Built on Market Trend Data
Divvy carefully chose the markets to launch in based on extensive market trend data from ATTOM, including historical home price appreciation, gross rental yields, property values and equity, foreclosure activity, property characteristics such as year built and neighborhood characteristics such as school quality and crime rates.
“We tend to be in more stable markets where it’s easier to predict appreciation,” said Hefets, noting that it was important for the company to launch in a few markets ideal for the company’s business model and build off the success in those markets. “Staying deep within a couple of markets is really important. … Our goal is not to extend out to a ton of markets right away (but) extend out once you have that playbook.”
Fed Up With Status Quo
Divvy has purchased more than 100 homes since launching in October 2017, according to Hefets.
“That feels really good given how operationally complex this is,” she said. “We’ve had nothing but increasing demand over time. … We’re now gaining enough traction where there’s less of convincing that we’re a real company.”
The average purchase price for homes purchased by Divvy Homes over the past year was $131,000, according to an ATTOM Data Solutions analysis of public record data. Homes at that price point continue to be in high demand, Hefets noted.
“We buy $100,000 homes in Cleveland, so we’re not really seeing a slowdown,” she said, adding that the company has noticed a bit of a drop-off in cash offers from investors. “A little bit of a slowdown in investing activity. We used to bid against multiple cash offers.”
Divvy’s offering has been highly appealing to consumers, both renters and homeowners, according to Hefets.
“Whether you’re a renter or a homeowner we’re seeing them getting fed up with the status quo,” she said. “People are experiencing a beautiful product that feels different — ‘Wow, there’s actually real companies that are addressing this with technology.’”