Divvy Homes, a property-technology startup that buys homes on behalf of renters and helps them become owners, raised fresh funding in a round that roughly quadrupled its valuation to $2 billion.
San Francisco-based Divvy raised $200 million in equity financing co-led by Tiger Global Management and Caffeinated Capital, CEO Adena Hefets said in an interview. Those existing investors and others including Andreessen Horowitz, Singapore's GIC, GGV Capital and Moore Specialty Credit participated in the round, which pre-empted a capital raise that could have featured new investors, she said.
"We're aiming to bring a legitimacy to alternative home financing options," said Hefets.
The startup seeks to ease access to U.S. homeownership, out of reach by many due to strict underwriting by mortgage providers and rising house prices. Divvy's program, which spans three years with the option to extend for a year, provides customers with a budget to search for a home. Once they pick a home, the startup collects a deposit equivalent to 1% to 2% of the property's value and purchases the residence. Divvy then charges a monthly payment, up to a quarter of which can be saved toward a down payment, which can help win a mortgage approval.
Customers tend to save as much as 10% of the value of their home over their three-year lease, and have the ability to either buy it sooner or walk away and cash out their savings, Hefets explained. "A future goal is to launch a 30-year program which gives customers enough time to fully own their homes," she said.
"Over the next 10 years, we believe Divvy Homes has the potential to help more than 100,000 families become financially responsible homeowners," Scott Shleifer, a partner at Tiger Global, said in an emailed statement. The startup is part of a broader wave of companies seeking to redefine the way Americans access home ownership, he said.
In July, another rent-to-own company, Landis,
More than 750,000 consumers have applied to Divvy Homes since its 2017 founding. The company's growth has accelerated in the past six months, said Hefets, with the number of cumulative qualified applicants and acquisitions of homes per month tripling since it last raised $110 million at a $490 million valuation in February.
Almost 25,000 real estate agents work with Divvy, over three times the number that did 12 months ago, said Hefets, who co-founded the company with Alex Klarfeld and Nick Clark.
Some 40% of its customers have exercised their option to purchase their homes, and the startup's market share — or the portion of home purchases within its price point in cities that it’s active — has doubled since the end of 2020, Hefets said.
Caffeinated Capital founder Raymond Tonsing said Divvy cares deeply about its mission to help families build wealth and establish financial stability. Divvy customers on average build up $8,200 in savings while living in a house acquired by the startup. Hefets said that is about 10 times the median savings of an American renter, citing a 2017 study by the Joint Center for Housing Studies of Harvard University.
The fresh funding will take Divvy's portfolio from thousands of homes to tens of thousands of homes, Hefets said. The startup, which has about $850 million in debt, plans to spend on hiring, including on building out a team that educates real estate agents — a key referral channel — about its offerings. She said agents, who retain full commissions, have been quick to adopt Divvy's program because it acts as an all-cash buyer, which strengthens an offer.
Divvy's program is available in 16 major U.S. cities including Atlanta, Cincinnati, Houston, Tampa and Cleveland, where it believes renters comprise a higher part of the population and where the average home price sits within its "sweet spot" of $150,000 to $350,000. Cities in North and South Carolina as well as Detroit and Las Vegas are among areas Divvy is considering for expansion, though it will likely steer clear of hubs like San Francisco and New York.
Divvy — which takes care of maintenance, taxes and insurance — has experienced "really low" delinquency rates in part because its savings mechanism provides customers with a buffer, Hefets said. Divvy has begun to explore ancillary services, such as its own real estate brokerages, and has ambitions to offer title and escrow products as well as a mortgage.
