Divvy Homes Raises $110M Series C to Expand Rent-to-Own Program

For numerous individuals, the aspiration of owning a home remains a central part of the American dream, despite the challenges it presents.

Divvy Homes – a company focused on enabling more people to achieve this goal by purchasing a home and then leasing it back to the prospective owner while they accumulate equity – has recently completed a $110 million Series C funding round. Tiger Global Management spearheaded the investment, with significant contributions from a diverse group of investors, including GGV Capital, Moore Specialty Credit, JAWS Ventures, and current investors like a16z. This latest funding increases Divvy’s total funding, encompassing both debt and equity, to over $500 million since its founding in 2017, with approximately one-third coming from equity and two-thirds from debt.

The company’s previous funding round, a $43 million Series B, included investments from Affirm CEO Max Levchin and the homebuilding company Lennar, through its venture capital division. Divvy, established by Adena Hefets, Nick Clark, and Alex Klarfeld, originally began as an incubated project within Levchin’s startup studio, HVF.

In 2020, mortgage rates reached historically low levels due to the COVID-19 pandemic. However, rather than simplifying home purchases, many financial institutions actually implemented stricter criteria for loan approvals, according to Divvy CEO Hefets. Consequently, while lending institutions experienced high activity, a substantial portion of this was driven by existing homeowners taking advantage of the reduced rates to refinance their mortgages.

Initially, like many businesses, Divvy was uncertain about the pandemic’s impact on its operations. However, as the year progressed – and people globally spent more time at home – the company observed a surge in demand.

“We temporarily halted home acquisitions in March and April, pausing to assess the evolving global situation,” Hefets explained. “Once a degree of stability returned, we resumed our purchasing activities.”

Throughout 2020, Divvy broadened its reach from eight to sixteen markets and financed five times the number of homes compared to the pre-pandemic period. The company also supported its current customers by providing options like waived late fees and adaptable payment plans.

“Obtaining a mortgage became more difficult, coinciding with a significant increase in individuals seeking to relocate from apartment complexes and urban centers,” Hefets noted. “As conventional financing became less accessible, we experienced favorable conditions for our business model.”

Divvy did not reveal the valuation associated with this funding round, but Hefets indicated that it was “significantly oversubscribed.”

Rent to own

Let's explore how Divvy functions.

Divvy distinguishes itself from other companies in the real estate technology sector by focusing on modernizing the often complex and information-intensive procedures that homebuyers typically face. The company partners with individuals aspiring to homeownership, acquiring the property they desire and then leasing it back to them for a period of three years, allowing them time to accumulate the necessary funds for eventual purchase.

Instead of acquiring properties and then seeking tenants, Divvy reverses this approach. Potential homeowners select a property, and Divvy purchases it on their behalf, requiring an initial contribution from the renter of 1-2% of the property’s total value. The renter then takes possession of the home at closing and makes a single monthly payment. This payment covers both a rental fee consistent with current market rates and allocates approximately 25% towards building savings specifically designated for a future down payment (projected to be 10% of the home’s value) when purchasing the property from Divvy. Renters have the flexibility to redeem their equity or complete the purchase before the three-year term expires, should they choose. They also have the option to extend their lease agreement if additional time is needed to save for a larger down payment.

Divvy began purchasing homes in the first six months of 2018, and to date, approximately half of the initial renters have successfully repurchased their homes.

“Industry leaders often experience buyback rates in the low single digits, so our rate is significantly higher than the industry average,” Hefets explained to TechCrunch.

Initially, the homes Divvy purchased averaged between $140,000 and $150,000 in price. Currently, the average home price has risen to just over $200,000, she noted.

Beyond its goal of expanding access to homeownership, Divvy operates as a profitable business venture, according to Hefets.

“An increasing number of individuals do not qualify for traditional mortgage financing, and more people are finding it challenging to achieve homeownership,” she stated.

Investor POV

Alex Rampell, a General Partner at Andreessen Horowitz, spearheaded the initial investment in Divvy. He points out the challenge many face in accumulating funds for a down payment, noting it’s hard to save “while consistently spending money on monthly rent.”

He stated that a significant portion of the population desires homeownership but currently lacks the means to achieve it.

Rampell also values that Divvy’s approach differs from the conventional investor strategy of acquiring a property before seeking a renter.

He explained that Divvy avoids the situation of spending the initial months after a home purchase searching for a tenant, and doesn’t face the uncertainty of owning a vacant property or the potential difficulties of being unable to find a renter.

Scott Shleifer, a Partner at Tiger Global, describes Divvy’s achievements as “phenomenal.”

In a formal statement, he expressed his belief that Divvy has the potential to assist over one hundred thousand families in achieving financially sound homeownership within the next decade.

Divvy intends to utilize its recent funding, in part, to broaden its reach into additional areas, aiming to serve over 70 million Americans across more than 20 markets by the end of the year, including cities like Atlanta, Denver, Dallas, and Tampa. The company, currently comprised of 80 employees, also plans to enhance its services by introducing supplementary products to support buyers throughout the entire home-buying process. They currently assist with title & escrow, inspections, negotiation, and repairs. Ultimately, Divvy aims to “establish a fully comprehensive end-to-end experience,” encompassing realtor services and functioning as a lender, as stated by Hefets.

“This represents our broader objective,” she said. “We are still working towards realizing this vision.”