Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stinovic from Bloomberg Radio. Well, you might
Speaker 1: recently recall a story that we talked about. It was
Speaker 1: on the Bloomberg also at Bloomberg dot com about the
Speaker 1: property tech startups that buys homes on behalf of renters
Speaker 1: and helps them become owners. While it hit a two
Speaker 1: billion dollar valuation thanks to a recent round of equity
Speaker 1: financing led by Tiger Global Management and Caffeinated Capital. Let's
Speaker 1: find out a little bit more about this startup. We
Speaker 1: welcome Divvy Homes CEO Adina Heffitt's. She joins us on
Speaker 1: the phone in San Francisco. So nice to have you
Speaker 1: here on Bloomberg. How are you. I'm good. Thank you
Speaker 1: for having me here, Carol, Well, it's great to have
Speaker 1: you here because I think one of the things that
Speaker 1: we've talked about a lot over the last year and
Speaker 1: a half, especially with all the inequities that are out there,
Speaker 1: is the um lack of opportunities for many sectors of
Speaker 1: our population to be able to buy a home. And
Speaker 1: it's kind of this vicious cycle that prevents them from
Speaker 1: do it. So Dina talked us at bit about what
Speaker 1: you are doing at Divvy Homes and how it all works. Sure, so,
Speaker 1: do be just a new way to to finance the
Speaker 1: purchase of the home. What we do is we let
Speaker 1: our customers pick out a house. We will buy it
Speaker 1: on their behalf. We then rent it back to them
Speaker 1: and with their rental payments, they actually build equity in
Speaker 1: the property. So we let them build up to temper
Speaker 1: cent ownership and the property over the course of three years. Um.
Speaker 1: They can buy back the property in any type from
Speaker 1: us by getting a traditional mortgage and rowing their equity,
Speaker 1: or they can we can cash them out for the
Speaker 1: value of their equally in the home. So, Carol, what
Speaker 1: I really saw was that people are being able to
Speaker 1: access home ownership because mortgages are getting just more strict
Speaker 1: over time, harder to get, and so we thought might
Speaker 1: as well provide access through a new form um where
Speaker 1: it's it's sort of a rent to own option. How
Speaker 1: long have you guys been doing this? So we were
Speaker 1: founded about four years ago, but we've been purchasing homes
Speaker 1: for customers and helping them access home ownership for about
Speaker 1: three years at lass. And how's it going? So far,
Speaker 1: give us, give us ideas of a typical scenario and
Speaker 1: how it works out. Sure, So it's it's been really interesting.
Speaker 1: What we have found is that especially during the COVID period,
Speaker 1: access to mortgages have actually only gotten more challenging, and
Speaker 1: so we saw a rapid rising demand during the COVID
Speaker 1: time period, and say, UM have thousands of customers who
Speaker 1: are using us to purchase homes across sixteen different markets.
Speaker 1: What's really interesting is how well people are actually being
Speaker 1: able to buy back to home. So we're seeing a
Speaker 1: buyback rade of roughly which is four times uh sorry,
Speaker 1: ten times the the average. The most rent to own
Speaker 1: companies have the most rento own companies are are sort
Speaker 1: of low single digits UM, and we're almost ten x
Speaker 1: that amount in terms of buyback rade. What's even more
Speaker 1: interesting is that our customers have on average about eighty
Speaker 1: two hundred dollars of savings in their home UM. And
Speaker 1: so when you think about the average American most doesn't
Speaker 1: have um almost anything in savings. I think the average
Speaker 1: amount of savings for rent or is roughly about eight
Speaker 1: hundred dollars. So we're right now helping your customers save
Speaker 1: a lot which feels really good. So you're saying they
Speaker 1: have a rainy day fund of well, it's it's invested
Speaker 1: in their homes. So it's investment in the equity of
Speaker 1: their home. Well, I'm trying to understand what that appreciating value.
Speaker 1: That's what I want to understand. When you say customers
Speaker 1: have an average of savings on their home. What is
Speaker 1: exactly do you mean by that? Is that equity? Is
Speaker 1: that what that is? Yes? Exactly. UM. So we we
Speaker 1: don't technically from a legal perspective, it's not technically called. Um,
Speaker 1: it's not technically equity. However, UM, what we do is
Speaker 1: we basically keep a virtual equity account for them. So
Speaker 1: they contribute savings into an account we save there for them,
Speaker 1: and we give them credit for for their present ownership
Speaker 1: in the house. So let's say buy a house, Carol
Speaker 1: ad Let's say a hundred thousand dollars. UM, they put
Speaker 1: in ten thousand dollars at the beginning of the program.
Speaker 1: That home appreciates to a d twenty dollars. They owned
Speaker 1: ten percent of that home. So the ten thousand dollars
Speaker 1: they originally put in, but they actually their ownership is
Speaker 1: ten percent. And so the value of that equity is
Speaker 1: close to twelve tho dollars and they made a two
Speaker 1: thousand dollar gate on their equity and they get the
Speaker 1: full benefit of that. So you said about the buy
Speaker 1: back grade of people who UM rent to buy, the
Speaker 1: buy back grade is forty and you said, that's ten
Speaker 1: times some of the other rent to own companies. Of
Speaker 1: the sixty percent who don't ultimately do it. What happens.
Speaker 1: So it's actually interesting is we're seeing a lot of
Speaker 1: people who um, you know, saved up to ten percent,
Speaker 1: but turns up they need just a slightly larger down payment.
Speaker 1: As we're seeing a decent percentage of people who actually
Speaker 1: just stay in the house and they continue to build
Speaker 1: up equity, so they build up larger round payment savings. UM.
Speaker 1: There are some people who also just turn over. UM.
Speaker 1: You know, we really encourage access to homeownership, but we
Speaker 1: want someone to be able to actually want to live
Speaker 1: in the home. So if your neighbor, you know, you
Speaker 1: don't get along with your neighbor, you don't like the
Speaker 1: school district, and you want to move, we don't make
Speaker 1: it to that you're stuck in this house. You cash
Speaker 1: out your equity and you can move on to another
Speaker 1: location that might work better for you. Do you think
Speaker 1: you know? Ultimately and get to a point where most
Speaker 1: renters become a homeowner in this process. That is what
Speaker 1: our our goal is. Like our goal we're starting out
Speaker 1: at goal is only to increase that over time, and
Speaker 1: we've done that through a couple of very specific things.
Speaker 1: So first, um, we offer a free credit counseling for
Speaker 1: all of our customers. That's a really important part of
Speaker 1: our program. UM. Second, we have mortgage partnerships UM, so
Speaker 1: we're able to refer customers over the mortgage providers today
Speaker 1: that helps them actually work through the homebuying process. In
Speaker 1: the future, what we want to do is be able
Speaker 1: to eventually help issues the mortgage to the customers ourselves,
Speaker 1: and that's something that we're slowly building towards because this
Speaker 1: buyback portion um and increasing the percentage is quite important
Speaker 1: to us over time. You're listening to Bloomberg Business sweet
Speaker 1: Cal Masser in our indirective broker studio. Still with us
Speaker 1: is Adina helf A, chiefs chief executive officer of Divvy
Speaker 1: Holmes with us on the phone from San Francisco. So
Speaker 1: you mentioned you know Adina the goal is to get
Speaker 1: you know, more UH renters in every renter if possible.
Speaker 1: Who partaking your program to become a owner in this process?
Speaker 1: Tell me a little bit about, you know how the
Speaker 1: traditional financial system when when we talk about it a
Speaker 1: fair amount here at Bloomberg, they really don't. They really
Speaker 1: kind of ignore a big part of the population. How
Speaker 1: do you deal with things that they might say is
Speaker 1: important like bad credit ratings or not a credit credit history,
Speaker 1: or low income? How do you deal with that? Sure? Yeah,
Speaker 1: So the mortgage market was created, has been around for
Speaker 1: a while, but was really put into um existence by
Speaker 1: the GSCs back in and during that time they set
Speaker 1: underwriter requirements so FICO requirements where your income had to
Speaker 1: be debt to income ratios and down payment requirements. Rightfully,
Speaker 1: so those requirements have not changed over the last hundred years.
Speaker 1: And the reason why is the couple of times since
Speaker 1: that they've tried to change them slightly, it's led to
Speaker 1: major issues like the global financial crisis. Right um, and
Speaker 1: and so I actually really believe that the mortgage market
Speaker 1: is efficient and should continue to operate as it is operating.
Speaker 1: And the reason why is if there is someone who
Speaker 1: is unable to make their mortgage payments, and there has
Speaker 1: to be a foreclosure that happens. For closures are extremely
Speaker 1: expensive and just take a really really long time, mostly
Speaker 1: because they're just so heavily regulated. Did he can take
Speaker 1: on people who are in a wider credit spectrum than
Speaker 1: than a traditional mortgage, So we go as well as
Speaker 1: a five fifty pc although our sweet spot is right
Speaker 1: around called six seven hundred YCO. We only require one
Speaker 1: to two percent of the home value as a down
Speaker 1: payment UM, so are our customers generally have on average
Speaker 1: call it two to six thousand dollars saved up UM.
Speaker 1: We require a minimum of two thousand dollars UM. And
Speaker 1: because our our our product is fundamentally a rental product,
Speaker 1: if the tenant is unable to make a payment, we're
Speaker 1: able to be a little bit more flexible, try to
Speaker 1: work through a payment plan and ultimately in the worst
Speaker 1: case to or if we do have to go through
Speaker 1: an eviction. UM evictions are less costly and take a
Speaker 1: lot less time, which means that we can take more
Speaker 1: risk and opening up the aperture for who we offer
Speaker 1: this product to than a mortgage can take. Hey and
Speaker 1: doing this what has been a surprise to the upside.
Speaker 1: What has been a surprise to the downside. Oh wow,
Speaker 1: that's an interesting question. Uh, surprise that the upside has
Speaker 1: just been Um. You know, everyone talks about starting a
Speaker 1: mission based company, and for me, that has really just
Speaker 1: gotten better over time. I love waking up every day.
Speaker 1: I love helping people actually act as homeownership. I really
Speaker 1: believe that it is a major way to to grow
Speaker 1: well for the low middle income Americans. So I think
Speaker 1: it's actually quite important. Um to the downside, I would say, Um,
Speaker 1: you know, building a company is just a bumpy ride. UM,
Speaker 1: and things like you know, right now, we're having a
Speaker 1: mass shortage of inventory. UM. Interest rates are kind of
Speaker 1: very low right now, but kind of jumping all over
Speaker 1: the place, and we're not sure where they're going to go.
Speaker 1: You know, you have to be apparent for some of
Speaker 1: these macro things that impact your business but maybe are
Speaker 1: hard to predict at the onset. I never thought I
Speaker 1: was gonna be managing a company through a global pandemic.
Speaker 1: I've learned more in the last year and a half
Speaker 1: than I have probably my prior by prior, you know,
Speaker 1: thirty four years um. And so I think that that
Speaker 1: has made it a really interesting learning experience, but but
Speaker 1: definitely um a little bit of a crazier ride than
Speaker 1: I had expected. It's like overnight, you're now ahead of
Speaker 1: a company with a lot of experience because of the pandemic.
Speaker 1: And we we've heard it listen, We've heard it from
Speaker 1: CEOs who have been leaders for a long time. There's
Speaker 1: just things they learned because they had to and pivot quickly.
Speaker 1: The timelines were just so bizarre during the last year
Speaker 1: and a half. Um, one thing I wanted to ask you,
Speaker 1: in terms of home ownership, how does it how do
Speaker 1: you think about things like diversity and inclusion to make
Speaker 1: sure that you are helping a diverse population. So what's
Speaker 1: interesting is that that's the Government Act SALLY regulates that
Speaker 1: you can collect um demographic information on an individual. So
Speaker 1: you can't ask someone what their races. You can actually
Speaker 1: ask them if they have children or not upfront in
Speaker 1: the application. And all these things are really important because
Speaker 1: those were historically groups that had been discriminated against when
Speaker 1: it came to rental property. So we don't ask any
Speaker 1: of that up front um, although I do estimate just
Speaker 1: from qualitatively having met a lot of our customers I
Speaker 1: think our demographics roughly represent um, the demographics of whatever
Speaker 1: area we're in. So I think like someplace in Atlanta
Speaker 1: that I don't know the exact number, but it's probably
Speaker 1: call it six percent of the populations black. I'd say
Speaker 1: probably similar numbers are a similar percentage of Divvy customers
Speaker 1: are also black. We have a lot of families. I'd
Speaker 1: say that that's probably the majority. We don't know up front,
Speaker 1: but later on we do make them list out everyone
Speaker 1: who's in the house just for safety reasons. Um. So
Speaker 1: a lot of families, um and a pretty diverse customer base,
Speaker 1: which we were really proud of. Hey really quickly, just
Speaker 1: got about forty seconds here. Um. I do wonder what
Speaker 1: the end game is for you guys. Do you find
Speaker 1: that staying private is a better thing? You just did
Speaker 1: another funding round, you're now hitting a two billion dollar
Speaker 1: or you're there at a two billion valuation? Is the
Speaker 1: endgame to go public? And I just or do you
Speaker 1: need to stay private in order to function in the
Speaker 1: best way possible? And again, just got about thirty seconds. Yeah,
Speaker 1: so I'd say, Carol, staying private is always preferable than
Speaker 1: having to a a public as you know, going public as
Speaker 1: a company has a lot of legal and compliance requirements. However,
Speaker 1: I do foresee us probably going public within the next
Speaker 1: five years, just because of the asset class we're in,
Speaker 1: the amount of capital that we need to access. The
Speaker 1: public markets also generally tend to understand real estate businesses
Speaker 1: super well, um and we've seen a bunch of our
Speaker 1: protect competitors benefit from this so greatly. On the horizon
Speaker 1: at some point, well, I hope you'll you'll stay in
Speaker 1: touch and let us know as things progress over the
Speaker 1: next couple of years. Left to check back with you
Speaker 1: real soon to see how things are going to be home.
Speaker 1: CEO Adina half Its joining us on the phone in
Speaker 1: San Francisco,