Jeanine Smith wanted to buy a house for her family in Ohio, but a spotty credit record and modest savings put a mortgage just out of reach.
She went online and found an unexpected ally — Bay Area startup Divvy Homes.
“They purchased a home for us,” said Smith, now living in a large, two-story house in Cleveland with her extended family. “This is such an innovative program.”
The two-year-old San Francisco company is seeking to boost home ownership by finding customers with steady employment who are eager to own a house but are saddled with less-than-perfect credit. The company earns income as a landlord and, potentially, on the sale of the home.
Divvy Homes founder Brian Ma said the declining rate of home ownership in the U.S. has created a new market. “There’s a gap between renting and owning,” Ma said. “It’s getting much bigger.”
Ma saw an opportunity to reach renters with good-but-not-great credit scores — those who might not qualify for traditional mortgages — and help them purchase properties. The tech company has identified up-and-coming markets where it can afford to purchase many homes.
It won’t be expanding near its headquarters, where home prices are the highest in the country. “We’re a startup,” he said. “We have to go into places that aren’t the Bay Area.”
Rent-to-own contracts are not new but more typically apply to televisions, couches, dinette sets and sometimes vehicles. Bringing the idea to real estate requires capital, strategic partnerships with real estate agents and mortgage brokers — and the right customers.
Martin Orefice, founder of an online platform for real estate transactions, RentToOwnLabs.com, said the practice is not widespread in home sales and has its share of pros and cons.
For potential buyers, it can bring financial discipline to a renter struggling to save for a down payment. For sellers, it can eliminate fees and a longer sale process that comes with real estate agents, he said.
But prospective buyers tend to be a bigger credit risk and less dependable than the majority of the home-buying market. “It’s not a great option for everybody,” Orefice said. “You could be setting someone up for failure.”
The pool of tenant buyers is larger than traditional home buyers in some areas, he said. For example, Orefice, based in Orlando, put up a rent-to-own sign in front of a property that drew 200 phone calls.
Sandra Knau, spokeswoman for the California Department of Real Estate, said the …
Source:: East Bay – Lifestyle