![]() ![]() ![]() Represents “typical home value for each region. Source: Zillow ZHVI Index: Metro-level SFR Data (Jan 2000 - Sept 2021). We assume it will use SLD to attempt to incent users to take Divvy's loss although practicalities around financing and user wherewithal will limit efficacy. If 3Y CAGR < TAA, a user either overpays (if a lender will finance home at an inflated price) or bears penalties of equivalent severity.ĭivvy does not specify whether it would use its 'shared loss deduction' lever only if values decline, versus fall short of its expected appreciation. For each monthly CAGR calc, if it exceeds TAA, a user buying in this month captures the overage, buying the home for < spot price. I assumed Divvy would choose as its predetermined forward price, the T = 0 market price grown by the truncated arithmetic average (“TAA”) for each respective MSA. I assumed each sale takes place at lease expiry (T = 3). Methodology: First I ran three-year CAGRs on monthly SFR data back to Jan 2000. If the contract price exceeds the spot price, and users still close, Divvy has successfully hedged. While the forced-savings account Divvy helps users to accrue does not earn equity returns, users are contractually bound by a forward to purchase, and if the spot price exceeds their contractual price, they enjoy the appreciation overage. The above is an attempt to quantify the expected appreciation returns to users of Divvy. If User decides not to buy at the predetermined price (“PP”), User gets back its savings net of a "relisting" fee (2% of home value plus other fees) and Divvy “…may choose to assess a Shared Loss Deduction to the tenant to help allocate some of the downside of home price depreciation.” Since Divvy doesn’t specify an interest rate, we will assume users earn market rates of interest (< 1%). Unlike in a traditional rental agreement, wherein the landlord bears responsibility for repairs and maintenance, Divvy only covers the “…cost of any maintenance or repairs required to ensure the home is safe and habitable - for example, roofing, HVAC, foundation, electrical systems, etc.” It delegates what it deems “cosmetic repairs” (“…including but not limited to painting, carpeting, landscaping, or appliances.”) to the user.Ībout 25% of User’s monthly payment (the balance being market rent) goes toward its savings account (rather than it being invested in home equity), although this capital is at-risk in the event of declining home values. ![]() User enters a three year lease and forward purchase agreement with Divvy, during which it may purchase the home at a pre-negotiated price (“PP”). Divvy buys the home, with User contributing 1-2% of the purchase price (goes toward it’s savings account). Divvy touts its AI approach to credit assessment, which could enable it to identify credit-challenged users who, low FICO notwithstanding, present favorable credit risk. How it Works: After a qualification process in which Divvy assesses how much home it would buy for User (predicated on credit, income level, location), User can then shop for a house or condo. Divvy buys the home of a user’s choice and, since it may end up owning and selling the asset to someone else, its interests are aligned with those of the user in terms of selecting a home that presents good value and limited capital needs. What distinguishes Divvy from prior variants of this model is that Divvy isn’t selling run down homes purchased at foreclosure auctions while committing renters to cover code compliance required repairs and back taxes. Per its website, Divvy Homes is "…in the business of financial equality." It is a variation on the classic rent-to-own model whereby instead of buying a home outright today, a user (“User”) can occupy said home as a renter today, and purchase it from Divvy in < 3 years, by which point User should have saved ~10% of the home’s value. Why society? Most of these firms purport to advance a social mission. This series aims to provide a look beneath the corporate veneer to discern which firms create value for users, investors, and society. Over the past few years, as pronounced demand against constrained supply has produced outsized home price appreciation relative to wage growth, a host of venture-backed companies have emerged to address housing affordability, some offering novel solutions. ![]()
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