One of the biggest questions new investors face is:

How do I fund a real estate deal?

There’s no one-size-fits-all answer. The right financing strategy depends on your income, goals, timeline, and the type of deal you’re pursuing. Here’s how I think about it:

Conventional Loans

  • Offered by banks, credit unions, and mortgage brokers
  • Typically require 20–25% down for investment properties
  • Offer favorable interest rates if you have strong credit and W-2 income
  • Great for long-term buy-and-hold rentals or a cash-out refinance

If your debt-to-income ratio is too high or your employment is nontraditional, this option might not be available or may come with less favorable terms. That’s where a DSCR loan comes into play.

Debt Service Coverage Loan (DSCR)

  • Based on the property’s cash flow, not your personal income
  • Ideal for self-employed individuals or those scaling a portfolio
  • Typically have higher rates and fees than conventional loans
  • Offer fast funding and flexibility

DSCR lenders primarily care about whether the rent can cover the debt.

Home Equity Line of Credit (HELOC)

  • Tap into equity from your primary residence
  • Flexible line of credit for down payments or renovations
  • Often interest-only payments during the draw period
  • Great for recurring access to capital between deals

This is one of the most powerful tools in a real estate investor’s playbook especially if you’ve built significant equity in your home.

401(k) Loan

  • Borrow up to $50,000 or 50% of your vested balance
  • Repay yourself with interest into your own retirement account
  • No early withdrawal penalties or tax hit
  • Quick access to funds (but check plan rules if you leave your job)

This can be a smart short-term bridge for investors who want to act without draining personal savings.

Unsecured / Personal Loans

  • No collateral required (unlike a mortgage or HELOC)
  • Based on income, credit score, and debt-to-income ratio
  • Loan amounts typically range from $5,000 to $100,000
  • Higher interest rates and shorter repayment terms (usually up to 5 years)

Hard Money Loans

  • Short-term, high-interest loans based on the asset itself
  • Used for flips or fast-moving opportunities
  • Come with higher fees, but offer speed and flexibility
  • Always have a clear exit plan (like a refinance or sale)

These aren’t for every deal, but if you’re buying distressed assets or doing renovations, hard money can help you move fast when timing matters most.

Creative Financing

  • Seller financing
  • Subject-to (taking over the seller’s existing mortgage)
  • Lease options or partnerships

These strategies can work well when traditional financing falls short especially with motivated sellers or unique deal structures.

Relationships Matter

If you want better terms, faster closings, and a competitive edge, build relationships.

  • Open accounts with local banks and credit unions
  • Stay in touch with your loan officer even between deals
  • Share your goals and ask questions proactively

Depository relationships often open doors.
That $1000+ checking account today might unlock a $500,000 loan down the road.

Final Thoughts

Don’t let financing fear stop you from investing. You don’t need to know everything, but you do need to take the next step.

Start by:

  • Engaging with a lender and obtaining a pre-approval letter
  • Opening a HELOC
  • Evaluating other sources of liquidity (like your 401(k))

Understand your options and get prepared so you can move quickly when the right deal comes.