How One Startup Approaches Rent-To-Own

Founded two years ago, Divvy buys homes for cash and then leases them to tenants who apply part of their rent toward a down payment.

1 minute read

November 25, 2019, 11:00 AM PST

By Philip Rojc @PhilipRojc

"Rent-to-own programs have been around for decades," Susan Taylor Martin writes. Each has its advantages and drawbacks, and the two-year-old startup Divvy is no exception. 

The company's approach to rent-to-own goes like this: "With the company's help, a renter picks out a house that Divvy buys for cash. The renter puts down 2 percent of the purchase price and a growing percentage of the rent goes toward equity each month — 2.1 percent the first month, 2.2 percent the second month and so on up to 10 percent over three years."

After three years, the renter can apply their accumulated savings as a down payment toward a buyout or walk away and get back the extra money they paid. "The purchase price would be about 10 percent more than what Divvy paid," Martin notes. Whether they choose buy or not, renters have to lease the property for all three years or forfeit half of what they've saved.

"In buying houses they rent to potential buyers, Divvy and Home Partners of America are banking on a business model geared toward people with steady incomes who at this point in their lives can't quite afford to buy or don't want to commit to home ownership. Such rent-to-own programs especially appeal to newcomers who want to 'try out' an area before buying."

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