Divvy Homes, the rent-to-own startup that once commanded a $2 billion valuation, is facing another setback as it announces its third round of layoffs in just one year. The company, which garnered significant attention and investment from Tiger Global and other high-profile investors, is struggling to adapt to the changing landscape of the real estate market.
Key Takeaway
Divvy Homes, a rent-to-own startup with a previously high valuation, is facing its third round of layoffs amid a challenging economic climate and soaring mortgage interest rates. The company’s unique approach to homeownership has been hindered by the rising costs of capital, limiting its ability to purchase homes and generate revenue. This situation highlights the vulnerability of real estate tech companies in the current market environment.
The Impact of Rising Mortgage Interest Rates
Mortgage interest rates have been steadily increasing, and this has taken a toll on Divvy Homes’ business model. The company’s recent layoffs, affecting 94 employees across various departments, are directly tied to the current macroeconomic climate and the sky-high cost of capital. Divvy Homes’ decision to downsize is an effort to conserve cash and weather the storm caused by the unfavorable economic conditions.
The layoffs will take effect on November 7th, and they come on the heels of previous rounds of job cuts. In February of this year, Divvy Homes laid off an undisclosed number of employees, including the head of growth marketing. Another layoff, affecting approximately 40 people or 12% of its workforce at the time, occurred in September 2022. These ongoing layoffs indicate the challenges the company is facing and its struggle to find stability in these turbulent times.
Divvy Homes’ Unique Approach
Divvy Homes initially gained attention due to its innovative approach to homeownership. The company aimed to help renters transition into homeownership by allowing them to choose the home they wanted and then renting it back to them for a period of three years. During this time, renters would build the necessary savings to eventually own the home themselves.
However, the company’s ambitious goals and unique model seem to have run into multiple obstacles. The surge in interest rates has severely impacted Divvy Homes’ ability to purchase homes, limiting its revenue-making potential. Additionally, criticisms have arisen regarding the company’s rental prices, with reports suggesting that Divvy Homes charges higher rents compared to other landlords and may occasionally neglect necessary repairs.
The Greater Impact on the Proptech Industry
Divvy Homes is not alone in its struggles. Other real estate tech companies, including Better.com and Reali, have also faced significant challenges as a result of surging interest rates. The proptech industry as a whole has experienced a turbulent period, with online mortgage lenders and rental startups being particularly vulnerable to shifting economic conditions.
