A San Francisco startup known as Divvy Homes, which operates in Cleveland, Memphis and Atlanta, is the point of interest of this Wall Street Journal story about corporations which might be “creating new methods for shoppers shut out of the standard mortgage market to have the ability to be part of the ranks of householders.”
The Divvy idea is fairly easy. As The Journal places it, the corporate “buys houses on behalf of shoppers, then rents the houses to the shoppers as a part of a deal that lets them construct up fairness towards a purchase order.” It basically permits would-be patrons to bypass huge down funds and mortgages with lease-to-own contracts. (Go here for a February 2018 Crain’s story by actual property reporter Stan Bullard that appears on the firm’s entry on this market.)
The Journal says Divvy and different startups — amongst them are ZeroDown, Flyhomes and UpEquity — are gaining traction as a result of “excessive dwelling costs and a restricted provide of starter houses have made it troublesome for some individuals to enter the market. Millennials, specifically, face steep obstacles to homeownership due to student-loan debt and low financial savings resulting from gradual profession begins in the course of the recession.”
In Cleveland and the 2 different markets the place Divvy operates, “potential patrons bear a credit score and monetary test and are advised to discover a dwelling inside a worth vary specified by the corporate. Divvy buys the house with money on their behalf. The patrons pay 1% to 2% down and transfer in for a three-year lease,” The Journal notes. Divvy prices month-to-month hire, with about 20% of the month-to-month cost going towards fairness to purchase the house. It targets houses within the $100,000 to $400,000 vary.
Nicholas Clark, Divvy’s co-founder and chief know-how officer, tells The Journal, “We regarded nationwide and noticed homeownership charges declining yr over yr. This works for married with a household trying to purchase their first dwelling who haven’t got sufficient saved as much as qualify for a mortgage or who’ve a credit score hiccup to restore.”
A phrase of warning within the article comes from Sarah Bolling Mancini, an lawyer with the Nationwide Client Regulation Middle.
She says that whereas these new rent-to-own fashions aren’t like those who triggered the monetary disaster, “there are dangers, together with not having the ability, or not wanting, to purchase the house after the rental interval is over and having paid greater than you usually would have paid for those who had been simply leasing,” in response to the newspaper.
“For most individuals, the most secure route is to attend till you qualify for a mortgage and save your cash and maintain renting like a daily tenant,” she says.
Divvy, in the meantime, on Wednesday, Sept. 25, raised $43 million in Sequence B funding to gasoline additional enlargement.