“You better cut the pizza in four pieces because I’m not hungry enough to eat six.” –Yogi Berra
In the future, you will buy your house from, or sell your house to, a company due to the laws of comparative advantage. We have made many investments (e.g., FlyHomes and OpenDoor) around this thesis.
But how do you fundamentally unbundle housing and what it means to “have a house”? Owning a house confers (bundles) three rights:
- Right to live in the house
- Right to a rental stream if you rent the house
- Right to appreciation if the house increases in value
Houses that are for sale are…for sale. Houses that are for rent are…for rent. Why not take a house that’s currently for sale, and turn it into a rental — to you? And why not take rent and turn part of it into an ownership interest?
Enter Divvy. Started by Brian Ma, Adena Hefets, and Nick Clark — the perfect combination of real estate guru, capital markets guru, and engineering guru — Divvy lets you pick out any house on the MLS, buys it for you, and rents it to you, conferring an ownership position over time. It’s a new path to home ownership and a redefinition of residential housing verbs. Do you own, do you rent, or do you Divvy?
There’s also a clear network at play. There are 2 million licensed real estate agents in the U.S., a plurality of whom go without a single transaction in a year. If agents could just expand the “pool” of buyers by changing the definition of buying (not by encouraging people to buy more house than they can afford!), they have a ton of opportunity in many, many otherwise unavailable clients — the entire rental population.
And that’s precisely how Divvy works. You either hear about it from Divvy (word of mouth/advertising) or from an agent. You find the house you want on the MLS. Divvy buys the house (using an agent to close the transaction), owns the house, and rents it to you. And during the rental term, part of your rent goes to establish an ownership stake.
This is powerful for several reasons. One, it blurs the lines (in a good way!) between renting and owning, and makes often nicer “for sale” housing stock — closer to good schools and amenities — available to those who can’t afford to buy. Two, it prevents renters — especially those who want to live in a nice area — from simply burning up their income on rent and not being able to make a down payment in the future. Third, it provides better alignment — think the antithesis to the Warren Buffet saying of “nobody washes a rental car”. Owners take better care of their property than renters do.
On the “investor” side (Divvy uses debt to buy homes), it’s very compelling to only buy a property when you have a captive tenant (those familiar with real estate might view this as a twist on the “sale leaseback”). Normally, if you are a landlord, you first build or acquire a property, and then have to find a tenant. In Divvy, the order of operations are reversed, and the returns have been very compelling.
We are very excited to partner with Divvy by leading their Series A.
The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.