MM Note: I like to showcase cool startups that are making it easier to invest, especially ones where I live in Chicago. I really like the Digs concept, which makes saving up for a down payment easier and thus homeownership more accessible. While they are currently only in Chicago they have plans to expand into other cities shortly.
There has been an increase in new apartment developments across the US as investors take advantage of the growing rental trend among younger generations.
Some speculate that this could spell the end of the American Dream of owning a home. However, that simply is not the case.
Millennials have been delaying many of their major life events compared to past generations; whether it be marriage, kids and now buying a home. Just because people are renting for longer doesn’t necessarily mean it is their end game.
Renting vs. Owning by the Numbers
According to a report by Apartment List, 80% of millennials plan to eventually buy and only 1.8% say they have no intention of buying a home. So why are so many still renting into their 30s?
To put it simply, people can’t afford to buy as early in life as their parents. This is due to a number of economic factors coupled with high student loan debt.
According to a 2017 report by the National Association of Realtors, 46% of millennial buyers have student loan debt, with a median amount totaling more than $30,000. And those statistics are just for those who have already purchased a home!
For many young renters in debt, saving the large amount needed for a home down payment might seem impossible. It can make the rent vs. buy calculation impossible. It’s no surprise that over half of millennials surveyed claim saving for a down payment is their biggest obstacle to buying a home.
Introducing Digs – The Startup that Wants to Help you Buy your First Home
One startup is trying to help renters reach their goal of homeownership earlier in life. Digs is a Chicago based startup that allows renters to earn cash back on the rent they are already paying.
This money gets put into a savings account that they are then able to use when purchasing their first home. Renters can also earn move-in bonuses when they change apartments, as long as they stay within the Digs Network.
The renter’s savings account never expires, and in fact, it actually earns interest.
This concept is similar to what is known as rent-to-own, which has been around for many years. The intention of the traditional rent-to-own model is to help renters build equity in a home before they are ready to buy.
This is done through a legal agreement between a landlord and a renter, which allows the renter to start building equity in the home by paying their rent every month.
At the end of a set term, the landlord agrees to sell the home to the renter and the equity built while renting is used towards their purchase.
The Problem with Traditional Rent-to-Own
There are many problems with the traditional rent-to-own model, which is why it is not a very common way to buy and sell real estate.
For one, the renter is only building equity in a specific home with a specific landlord. For many younger renters, they are still testing out different neighborhoods and are not ready to make a commitment.
There are also high upfront costs which make entering into these agreements a hassle, and usually, the rent is inflated by the landlord.
For these reasons, traditional rent-to-own has received a bad name and there are countless stories of landlords pulling scams on uneducated renters.
How Digs is Changing the Game
Digs allows renters to open a savings account that can be used for the purchase of any home. One is not tied into a contract with a specific piece of real estate like the aforementioned traditional model of rent-to-own.
In fact, renters can actually earn move-in bonuses towards their account when they move into other apartments within the Digs Network.
Digs understand that renters are not ready to settle down and encourages people to explore their city and find what feels right for them. Lastly, there are no upfront charges or inflated rent payment when using Digs.
As mentioned earlier, there are a number of economic factors that are likely having an effect on the current shift away from homeownership, but that doesn’t mean that an entire generation is not interested in owning a home.
They are just having trouble building the upfront savings necessary to do so. Rent-to-own was once the only way to build equity while renting, but it was littered with pitfalls and restrictions.
Digs is reinventing this concept and allowing a new generation to start saving for a home without the risk.