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A New Business Model Seeks to Upend the Traditional Lending Market

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Wednesday February 3, 2021
A New Business Model Seeks to Upend the Traditional Lending Market

While it’s generally a good idea to take the traditional route when it comes to financing a home, we would be remiss if we didn’t acknowledge other methods of accomplishing the same task. Today, we discuss the rent-to-own startup “Divvy Homes.” As of the date of this article, they are valued at approximately half a billion dollars.

Created in 2017, Divvy identifies itself as an alternative path to home ownership for people who don’t qualify for a traditional mortgage. The business model isn’t unheard of; Divvy purchases homes on behalf of the client, the client signs a 3 year lease, chips in between 1 and 2% of the home’s value, and ultimately builds their equity interest in the home to about 10%. Rather than “foreclose” on someone who has fallen behind on payments, Divvy appears to work with their clients, though eviction is sometimes the only option.

After COVID hit, unemployment skyrocketed, lenders tightened their purse-strings, and there was an exodus from multi-family units to single-family homes. As such, Divvy’s business model led to a 500% increase over the last year. Divvy is expanding rapidly; it derives its income from rental payments, they’ve grown 500% in the last year, and a snowball effect is all but certain.

While this seems appealing, it is important to note that Divvy is not a “lender,” and is not regulated by the same rules as “lenders;” which means their practices aren’t currently under much scrutiny. As time goes on, it is all but certain that their practices will be reviewed more thoroughly. Time will tell if this is a viable business model, or another flash in the pan. Either way, we highly recommend hiring an experienced real estate professional, who has your best interest at heart, to help you with the home buying process.

At the Chernov Team we understand that knowledge is power, and knowledge of fringe business models designed to help non-traditional borrowers achieve homeowner status is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.

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