UPDATED: Feb. 2, 8 p.m.: Rent-to-own startup Divvy Homes has raised $110 million to meet a wave of demand from customers who cannot secure a traditional mortgage.
The Series C was led by Tiger Global Management with participation from GGV Capital, Moore Specialty Credit, JAWS Ventures and others.
According to Divvy, the infusion of cash will accelerate its geographic expansion and support the launch of new products, including brokerage and title insurance. “We’re starting to build out services [for] an end-to-end customer experience,” said co-founder and CEO Adena Hefets.
Divvy’s valuation was not disclosed, but the round brings its total funding to $500 million in debt and equity.
Founded in 2017, Divvy bills itself as a way to bridge the gap that aspiring home buyers struggle to cross. Many of its customers are health-care workers, teachers and independent contractors. “There are people who can get a mortgage and folks who can’t,” Hefets said. “There aren’t many options for those who can’t.”
Divvy buys homes on behalf of customers, who sign a three-year lease on the property. Customers chip an initial 1 percent to 2 percent of the home’s value, and can then build their equity up to 10 percent. Those who fall behind can get their equity back, Hefets said in an interview with Inc. magazine.
“If someone falls behind on payments, we try to find a flexible solution. We will apply on their behalf for rental assistance,” she said. “They get their equity back if they just tell us this isn’t working for them. If they don’t communicate, we have an obligation to evict them.”
Hefets said Divvy’s business quintupled over the past year as unemployment spiked and mortgage lenders tightened their underwriting requirements. “In addition, you have mass migration from multi-family to single-family” homes during the pandemic, she said.
Divvy does not disclose the number of homes it owns, but has purchased “thousands” of properties since 2018, spending $100,000 to $500,000.
Last year it expanded to Miami and Fort Lauderdale, and it’s now in 16 markets around the U.S. It aims to be in 20 by the end of the year.
The company’s revenue comes from rental income. At the end of a lease, the customer can cash out or purchase the home from Divvy. “Ultimately, it’s similar to a mortgage,” she said. “It’s just that Divvy is in there instead of the bank.”