Divvy Seriesann Azevedotechcrunch: This post is about the home-buying and renting platform, Divvy. Divvy offers a model where monthly payments are used to both buy and rent homes – buying homes for future down payment to renters, or renting out homes for investors. The company has just raised $110M in series C funding, led by Iconiq Capital with participation from QED Investors. With this latest round of funding, Divvy is valued at $1 billion.
The company has been operating in the Chicago market for over a year, and has signed up over 1,000 customers. Divvy is rapidly growing their customer base in Chicago and have plans to launch in other major markets including Seattle, Boston and San Francisco.
Divvy joins the ranks of other home-sharing platforms such as Airbnb and others. The company differentiates itself by focusing on “home-buying renters” and operates at a larger scale:
Divvy’s typical homeowner has earned an income of $50,000 to $75,000 a year for four consecutive years. Typically, homeowners list their home at an asking price that is 40% below market rates. Divvy currently lists about 400 homes in Chicago on its marketplace. The company says it plans to list 2,000 homes in Chicago (and another 500 homes in Seattle) by the end of this year.
The company works with realtors and homeowners to list homes on their website. Divvy takes a 25% share of monthly rent payments to be applied toward a down payment on the home. That’s right, a lot of money is going away, and put aside at some point in the future for your down payment!
So how does this model work? Here’s how it works for renters:
Renters receive automated payments each month. There are no upfront fees or deposits. Renters are only responsible for their own home insurance and maintenance.
For homeowners:
Because renters only pay 25% of their payments for a down payment, it is financially advantageous to list your home with Divvy. Homeowners can receive a 40% return on their investment within three years (based on a $500,000 house). The average homeowner will realize an annual return of 3%.
The company plans to be in every major US city by 2020.
Aligning interests and the rise of new income groups
I have been talking about the alignment of interests between the middle class and big tech companies for a while now, and this company is a great example. The rise of new income classes that are not as rich as baby boomers (the top 1%, but probably not even the top 10%) mean that there is a large group of folks who want to buy homes… but they don’t have the down payment. They need a big helping hand. And the middle class definitely needs houses to rent out (considering they can’t afford to buy, or are looking at bidding wars all over the place).
If this model takes off, it looks very likely that Divvy and other similar companies will create a large new income class of home-owning renters. However, it is still up in the air if this model can be replicated both nationally and internationally. The US is a very large market, and it can be hard to export models like this. On the flip side, if this model can work in San Francisco, Boston, Chicago and Seattle – those are markets which it is a good bet will have high real estate values (in the future). If Divvy takes off in the US, it might be worth trying in Asia or Europe.
