Divvy Homes Is On A Mission To Make Homeownership More Accessible – With high eviction rates, substandard properties and shady legal practices, the rent-to-own business is one of the darkest corners of the real estate world. Financially vulnerable people looking for a piece of the American dream often end up pirated for better money and property, then dumped on the streets.
Divvy Homes, founded three years ago and backed by Silicon Valley investors, said it aims to change all that.
Divvy Homes Is On A Mission To Make Homeownership More Accessible
Instead of offering consumers a narrow selection of homes, Divvy allows them to choose a home on the open market. The sale price is locked in at the beginning of the lease, and an early purchase discount can be obtained. And they offer services to homeowners to help them get the mortgage they’ll need, while Divvy keeps the extra money they pay each month for down payments.
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After all, some once-wary consumers are convinced. “We did some research on it because we were suspicious and worried we might be scammed,” said Nash Alexander, who was arrested from his home earlier this year.
Now Divvy is entering an important year. The first three-year leases will soon expire, and those customers must make a buy-or-leave decision. Some customers, like Mr. Nash, closed on their homes before the program and find that Divvy is making good on its promise to offer a new way to home ownership.
But Divvy also showcases some of the industry’s most recognizable sites. Some customers complain of high costs and maintenance problems. In one area, Divvy sold the property to an outside buyer rather than the tenant who chose it. The company was involved in dozens of eviction lawsuits, though many were ultimately settled or stayed due to eviction moratoriums imposed due to the coronavirus pandemic.
The pain and progress made by Divvy is represented by the experiences of two teachers in two cities.
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Mr. Alexander, a teacher in Atlanta, couldn’t be happier. He and his wife, Pam, closed on their home 15 months early for $172,000. Rising costs in recent years meant they needed time to raise the down payment, and by buying early in their lease, they put $10,000 down.
“We hope not to rent from them for three years,” he said.
But Thomas Weaver, a private school teacher who lives in the Cleveland neighborhood of South Euclid and filed for bankruptcy in 2017, has nothing but complaints: $1,430 a month is too much, the company pulled its feet and made a discount. problems with bugs and mice, and the whole experience wasn’t worth the trouble, although he would have recouped most of the money he put into the purchase.
“We’re going to pay about $55,000 in rent over three years,” Mr. Weaver said. Away from home, he added, “we have nothing to show for it,” he said.
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Since it was founded in 2017, Divvy has been recognized as a member of a leading group of companies dedicated to people who have broken away from traditional debt. Backed by investors such as Silicon Valley venture capital firms Andreessen Horowitz and Caffeinated Capital, as well as a Singaporean sovereign wealth fund, Divvy has grown rapidly, now leasing more than 1,500 properties in nine markets, including Atlanta, Cleveland, Cincinnati. , Memphis and Phoenix. The company expects to convert half of its tenants into homeowners once its first batch of leases is completed.
Frank Ford, a senior policy advisor at the Western Reserve Land Conservancy who has focused on housing issues in the Cleveland area, said it would be a significant win, as Divvy customers often lack a good credit history. And, Mr. Ford said, Divvy has “avoided its worst abuses” in an industry that has grown in popularity since the 2008 financial crisis.
Thomas Weaver, a private school teacher in the Cleveland neighborhood of South Euclid who filed for bankruptcy in 2017, has nothing but complaints about Divvy. Credit… Da’Shaunae Marisa for The New York Times
Rent-to-own companies fill a niche in low-income communities, where small-dollar mortgages are said to be difficult. But dilapidated housing is often cheaply maintained, and the worst companies — some of which have been fined and fined by prosecutors — are quick to evict tenants and profit from the improvements they’ve made. not the customer’s expectation.
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Divvy described itself as the good guy in an industry that one of the company’s founders, Adena Hefets, admitted has a “terrible reputation.”
“I thought it was going to be the end of the world,” said Ms. Hefets, 33, who expected house prices to drop and mass foreclosures that didn’t happen. “Now we’re doing more votes than we ever did. It’s crazy.”
Ms. Hefets, who is also Divvy’s chief operating officer, said the company is essentially a “savings mechanism” for its customers. They pay rent on the market, with the premium going towards utility costs and a down payment. If the tenant buys the property, Divvy also makes a profit on the sale from the rent it collects. If the tenant decides not to buy — or still can’t qualify for a mortgage — Divvy refunds the excess money the tenant paid in equity, plus a “surrender fee” of 2 percent of the original purchase price.
For renters like Janese Scott, high payouts are motivation. Ms. Scott, 27, bought her home in Lithonia, Ga., for $133,000 in June, just five months after she began paying monthly rent. These payments totaled $1,520: $1,220 for rent and maintenance, and $300 in equity.
Adena Hefets, Ceo Divvy Homes
“Financially, it doesn’t make much sense to pay that much,” said Ms. Scott, a Verizon sales manager with a 6-year-old daughter. Her new monthly payment — a 2.75 percent mortgage, plus insurance costs — is just $895.
But Divvy doesn’t always meet the expectations of tenants, and at least one local authority, even as it generates more customers to look after.
Divvy allowed a tenant to move into an Ohio home without first fixing half a dozen property code violations, said Sally Martin, South Euclid’s housing manager. Problems with electrical wiring in the basement and plumbing and ventilation in the bathroom took a year to fix, he said. The final inspection is scheduled for next month.
“Divvy, by their own admission, has not done well on this transaction and is behind the eight ball when it comes to code,” Ms. Martin said in an email. He said Divvy’s decision to buy a house that needed a lot of work seemed in line with the company’s business model — which “only works if the house is in good shape.”
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Ms. Hefets, Divvy’s chief executive, said the company ensures the safety and viability of housing and allows tenants to choose a home only within a price range they believe they can afford. He said he is taking other steps to help customers, such as providing credit counseling and reporting only on-time rent payments to the credit bureaus to help improve tenants’ credit scores.
Ms Hefets said Divvy’s willingness to help has increased during the pandemic. “We monitor our customers’ ability to pay, and try to support them with rental assistance programs, are flexible about schedules, and try to reduce rental obligations wherever we can,” he said.
But the company’s size only stretches so far. Before multiple moratoriums were implemented across the country, Divvy launched dozens of eviction actions. Ms. Hefets said the company’s choice was reduced after tenants did not respond to notices.
The company can take the rent free from the tenant’s accumulated capital, but does not pay any additional penalties if an eviction occurs, Ms. Hefets said.
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“We aim to be fair and help customers where this is not good,” he said.
The company declined to say how many properties it has sold to customers or how many customers it has evicted, but not all tenants reach the end of their leases, whether by choice or not.
The company bought about 200 properties in the Cleveland area. It was resold 16 at the end of September, but according to interviews with buyers and a review of local property records, almost half of them went to buyers who had not previously rented their homes. This is likely a sign that the tenants have decided not to buy the property, or have been evicted.
Where tenants reach the end of their leases next year will provide a test of whether Divvy has truly provided a consumer-friendly alternative to traditional home buying. And Mr Ford, of the Western Reserve Land Conservancy, said the company’s good intentions would ultimately be at the mercy of its business.
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“It’s almost like they’re trying to accomplish a nonprofit mission through a for-profit business,” he said. Since its establishment.
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