Eighty percent of renters aspire to buy a house or apartment, and most of them say lack of money is what’s holding them back. That is the chief takeaway from a 2017 study by Apartment List that surveyed 24,000 renters.
Digs, a Chicago-based startup, wants to help more renters make the leap into ownership. Its technology lets users put a portion of their rent into a savings account reserved for future homebuying expenses.
“We are a savings plan for renters who aren’t necessarily thinking about buying right now, but who want to get on the path toward home ownership,” said co-founder Pat McLoughlin.
Digs encourages landlords to offer 1 percent back on each rent check, and the startup matches contributions to the account. For the renter of a $1,500 one-bedroom apartment, that would add up to $360 per year. However, Digs will match contributions all the way up to 2 percent.
Tenants only receive money back if they make their payments on time, saving landlords from the hassle of dealing with late payments, McLoughlin said. He also expects the service to increase tenant retention. That’s a big deal because landlords typically lose at least a month’s rent when a unit changes hands.
“There’s a very big disconnect between renting and buying.”
The tenant can put their savings toward a down payment or a number of the other fees associated with buying a home including appraisals, inspections and title insurance. McLoughlin said Digs makes the majority of its revenue through partnerships with the real estate agents and vendors who accept its payments.
Digs also provides users with a suite of educational resources about homebuying. The idea is to teach renters a little bit at a time so the process feels less overwhelming when they finally decide to buy.
“When they reach certain milestones, like saving $450, we send them a notification to tell them they’ve saved enough for a home inspection — along with an explanation of why they need one,” said McLoughlin. “A lot of people know they need to save up for a down payment, but they often don’t know about all the costs that come on top of that.”
McLoughlin and co-founder Chad Johnson, both architecture graduates from Miami University, previously founded a nonprofit that connects volunteers with construction projects around the world. But in looking for their next challenge, McLoughlin said they wanted to address an issue closer to home.
“There’s a very big disconnect between renting and buying,” said McLoughlin. “It’s almost like you start fresh. You don’t gain any equity while you’re renting, and your history as a renter doesn’t help you as a buyer.”
Launching this week with a limited number of units on its marketplace, the two-person startup plans to expand inventory — and team — significantly in the year to come. The founders are also in the early stages of seeking venture funding.
“We’re just getting started, and our goal is to have hundreds of properties around Chicago on our platform soon,” said McLoughlin. “It’s not going to be like Apartments.com, where we have every apartment available, but that’s only because we have a unique, niche product.”