At Divvy, we believe the transition from home renter to homeowner is one of the most exciting stages in our lives. But we also understand that for many, this move can seem like a daunting and overwhelming step. That’s why we created Divvy. Our goal is to help you seamlessly bridge the gap from renting to owning your home.
However, when explaining our program to prospective buyers we’re often asked, “Isn’t this too good to be true?” “What’s the catch?” Or even worse, “Is this a scam?”
We understand there is a logical comparison of Divvy to rent-to-own, an industry that has historically had predatory practices. While we fundamentally disagree with the way many rent-to-own programs have operated in the past, we believe that when done correctly, it could help many find their way into homeownership.
In this post, we’ll take you through the history of rent-to-own, and explain how Divvy takes a different approach: a simple, fair and honest bridge into home ownership.
The History of Rent-to-Own
The rent-to-own industry has a checkered past, dating back to the 1950’s when “contract for deed programs” proliferated. During this time, many marginalized communities were unable to access conventional financing. Exploitative sellers began to manipulate this situation by setting up the contract for deed system. Tenants would incur large amounts of maintenance costs, paying property taxes or other heavy penalties in exchange for the right to eventually purchase their home.
If the tenant was unable to fulfill their obligation, they would lose their right to purchase the home and any additional money they had paid in. An estimated 3 million people have bought homes through contract-for-deed arrangements, highlighting just how necessary this bridge is, even with difficult terms.
How is Divvy Different?
When forming Divvy, we believed that with the right values and with the help of modern technology, we could offer a fair and simple product.
So we decided to change things.
Here’s the old approach:
Rent-to-own companies would offer a handful of homes, usually homes that were not able to be sold any other way. The home condition would be poor, and customers would take on the burden of extensive repairs themselves – often sinking thousands or tens of thousands of dollars into the property. Prospective buyers would pay rent far above fair market value. If fair rent was $1000, then the tenant would have to pay $1250, with that extra $250 simply going towards fees and not their future home equity or down payment. If a customer couldn’t obtain a mortgage quickly enough, they’d lose all the money they had put towards this arrangement and would receive nothing in return.
Here’s our approach:
Our customers choose from any home for sale and Divvy then purchases the house on their behalf.* That means you get the same selection as any homebuyer – you aren’t choosing from homes in poor condition.
The customer then makes one monthly payment with ~75% going towards rent and ~25% going towards their home savings. For example, if the total Divvy payment were $1200, $900 would be rent and $300 would be home savings.
If the tenant decides they no longer want to buy the home, or they’re unable to obtain a mortgage, no problem! Divvy believes our tenants should still share in the home’s appreciation and still share the wealth-building effects of investing in real estate. We’ll cash out our tenants at the home’s new market value. If the home has appreciated from $100,000 to $120,000, and that means you get to share in that return with us.
What’s the Catch?
We know that after all this talk about broken systems and predatory practices, you must be asking “how we are able to do this?”
Divvy is a landlord, and as such, we make our profit by collecting rent. In order to apply part of the rent to home savings, we need to offset this with lower costs. We save on costs by working with responsible tenants who plan on owning the home in the future, and will care for the home as their own.
Here’s how it works. Say a client experiences an issue with a clogged drain; the tenants would take over duties most often delegated to a property manager. They would call the plumber themselves and receive an estimate for the fix. Divvy would still pay the contractor for their work (as is our legal responsibility as a landlord). But now we save ~15% of costs by avoiding the property manager. We are then able to proudly put those savings back towards the customer by offering a better product.
Just to reiterate, Divvy pays all costs related to maintenance, taxes, and property insurance. The tenant pays for utilities and takes care of property management logistics (scheduling and overseeing repairs).
The rent-to-own industry has most certainly been burdened by a historically poor reputation. But Divvy knows that there are still millions of potential homeowners looking for a better way to transition from renting to owning. At Divvy, we don’t believe we should be held back by the past, we should transcend it.
With simple, intuitive and transparent business practices, we are so proud to help our customers bridge the gap between renting a house and owning a home. So if you are ready to take the first step, head over to divvyhomes.com and let us show you how becoming a homeowner is far easier than you could have ever imagined.
*Divvy won’t purchase the home if it isn’t habitable, or if the price is above what we deem to be market fair.