To the affluent, a house is a status symbol. A way of flaunting their wealth. To the poor, a shanty is even a luxury one’s family can ill afford. The sidewalk is their abode.
In between, we have the working class and small entrepreneurs. To the highly paid professionals and successful entrepreneurs, commercial banks are always there to fund their home needs. To the ordinary employees, the Home Development Mutual Fund (popularly known as Pag-IBIG Fund) is their default.
However, whether it be Pag-IBIG or a commercial bank, equity participation is always required. Thus, for the not so liquid, that can be a huge challenge. Yes, it is true that some developers are allowing installment payments of the buyer’s equity. More often though, the buyer can’t move in before the full payment of the equity.
Despite these challenges, most of those longing for a home will still go ahead and own one. For one, as owners, they can create their own dream house and have the freedom to change or repaint the bedroom or renovate the kitchen anytime they want. They can do whatever home improvements they wish that will increase the value of their house. Also, unlike renting a place where their stay totally depends on the landlord’s wishes, they can sleep soundly knowing fully well that staying put is solely their decision.
Moreover, costs can be controlled since, in a rented place, landlords customarily increase their rents as years go by. In owning one, it won’t happen. Yes, if it is mortgaged and the interest isn’t fixed, the rate can go up. However, increases in rent are normally higher. More importantly, the market value of the property (the land) grows as years go by, thus, building one’s equity.
Of course, those aren’t liquid enough or isn’t comfortable borrowing money can always opt to rent a place and move in right away. Depending on one’s financial or earning capacity, a house, condominium unit or an apartment are some of the top choices. One thing for sure, however, to the prudent ones, paying rental forever isn’t an option at all. Surely, they will be looking for some sort of flexibility. That is why a hybrid approach, the rent-to-own scheme, is gaining traction.
But the rent-to-own scheme that is prevailing in the country today is already a bit antiquated. Essentially, it is a pure operating lease that leads to ownership at a given period of time usually offered by developers. Clearly, therefore, you have no other choice but their inventories.
Divvy Homes, a start-up in the USA, is altering the approach of rent-to-own. Not a developer, it is a “tech-enabled real estate platform that facilitates rent-to-own home purchases.” Actually, the company buys a house or any unit the renter chooses from anywhere on the market. Then, the renter shall, in turn, makes a down payment and moves in.
Using Divvy’s platform, everything is free and fast. Say, you apply and qualify, you receive a budget to go find a house or a unit you wish to have. An agent is always available to help you find one on the market. If what you pick qualifies, then, the company pays for the home and cover all fees, closing costs, taxes and insurance. All Divvy needs is for you to make a down payment of 1% to 2% of the value then you can move in. Notably, this down payment goes toward your home savings. Therefore, as you moved in, you started saving.
You are to sign a three-year lease. Each month, you are to pay rent (which goes to Divvy) plus home savings (kept by Divvy as your savings which you may use later towards owning the house) which is about 0.10%-0.25% of the home value. It is expected that in no more than three years, you shall be able to accumulate enough through your home savings with Divvy to put up the equity and let a financial institution fund the balance. If you won’t push through, Divvy can just simply return your home savings and you can walk away. That simple.
Replicating this model is simple too and a good business to start with. To those awash with cash, you don’t have to be a developer to be in the real estate business building inventories. In this model, you only have income generating properties giving you constant cash inflows during the lease period and full return of your invested funds as soon as the renters buy them.