- Divvy provides alternative financing options for potential home buyers who don’t qualify for traditional mortgages.
- Divvy buys homes outright and allows customers to pay it back in a series of monthly payments – 25% of which goes toward building equity and 75% goes toward paying “rent.”
- The company’s COO, Adena Hefets, told us: “We want [Divvy] to be the stepping stone that allows people to transition from renting to eventually owning their own homes.”
- In October, Divvy raised a $US30 million Series A round led by Andreessen Horowitz.
- The company operates in three cities currently (Cleveland, Memphis, and Atlanta) and in its first year, helped buy homes for over 100 people.
When Adena Hefets was growing up, her parents weren’t able to get a traditional mortgage.
Her family, however, believed in owning a home as an investment and a place to raise a family. So they found a way around the banks and received what’s called “seller financing,” where the home buyer pays the home seller in a series of payment installments.
Eventually, Hefets’ family built up enough equity in their home through the payment installments to qualify for a mortgage from the bank. With the mortgage, her parents were able to refinance their home, take out cash, and buy other rental properties.
“I was probably the only 10 year old who knew how to fix a clogged sink,” Hefets told Business Insider in a recent interview. “[It] was not a very useful skill to have then, but surprisingly useful now.”
That’s because Hefets and her co-founder Brian Ma have created a real-estate startup called Divvy, which emulates the idea of seller financing. Potential home buyers in Cleveland, Memphis, and Atlanta (the company’s first markets) who may not qualify for traditional bank mortgages can work with Divvy to receive alternative financing options and build toward owning the home.
Divvy buys homes outright and customers pay the company back in a series of monthly payments – 25% of which goes toward building equity and 75% goes toward paying “rent,” which is how Divvy makes its revenue.
Hefets explains that Divvy requires a 2% down payment from customers so that they have “some skin in the game.” Over a three-year period, customers will build toward owning 10% of the home, at which point they have built enough equity to apply for a mortgage.
A major pain point in the housing market
In October, Divvy raised a $US30 million Series A round led by Andreessen Horowitz with participation from others like Affirm CEO Max Levchin. Hefets – who serves as the company’s COO – tells us that in its first year, Divvy helped buy homes for over 100 people and has had over 20,000 people sign up for an application.
“We’ve found a really huge pain point in the market,” Hefets tells us. “People are really excited about finding alternative financing and are starting to gravitate towards Divvy.”
Hefets – who started her career in private equity – tells us that Divvy’s program of payment installments is a lot less risky for buyers than a traditional mortgage.
“The customers do feel like they’re owning a home and they are building up equity within in it. The difference is that we’re doing it in a more manageable way where it’s not as risky as being like, ‘Here’s an entire home and a giant mortgage,’ which is a lot of responsibility for some folks to take on,” Hefets said. “We’re not pushing [customers] to take on debt. Instead, we’re letting [them] build up equity which is nothing but wealth creation and savings.”
The San Francisco-based startup currently has 15 employees, and its COO says its official mission is getting 100,000 families their first homes.
“That’s what we’re trying to do in the next, no more than five years. We want 100,000 homes,” Hefets said. “We want that to be the first home that a family can buy and we want it to be the stepping stone that allows people to transition from renting to eventually owning their own homes.”
Still, there are plenty of challenges.
The emotions of buying a home
As a team, one of Divvy’s core values is to “check the upstairs plumbing,” which Hefets explains to mean, “don’t ever miss anything.” That value is especially important when it comes to home inspections. In the past, Hefets and her team have decided against buying certain homes, even if a customer said it was their “dream home,” because of issues like a leaky roof or termites.
That can lead to a range of emotions from potential customers.
“It’s the largest consumer purchase that they’re ever going to make in their lives, so it’s super emotional,” Hefets explains. “Which means what we’re doing is more exciting, but probably harder than what I had given it credit for.”
For every hard conversation though, there are plenty of positive ones. Hefets tell us of a conversation she recently had with a customer who just had his home approved.
“I got on the phone with one of our customers who’s typically a very serious guy. We’re on the phone and it’s like, ‘Yes, ma’am. No, ma’am. I agree. I don’t agree.’ Super formal,” Hefets explains. “At the end of the call he said, ‘Miss Adena, I want you to know that my mum tells me I don’t tell people enough how I’m feeling. And I want you to know: I am so excited!”