Funding Deals: Breaking Down Private Money, DSCR Loans, and Creative Financing

If you’ve ever said, “I’d invest in real estate... if only I had the money,” you’re not alone. But here’s the thing—successful investors don’t rely solely on their own savings to fund deals. They build a toolbox of funding options, and they know when to use each one strategically.

Whether you’re buying your first rental, scaling up to multifamily, or trying to secure capital for a flip, knowing how to finance the deal is half the battle. And it’s not just about finding money—it’s about finding the right kind of money for the right type of deal.

In this post, we’ll walk through three of the most common—and powerful—real estate financing tools used by modern investors: Private Money, DSCR Loans, and Creative Financing. We’ll unpack how they work, where they shine, and how to avoid the common pitfalls.

Let’s start with one of the most flexible funding sources out there—private money.

Private money comes from individuals, not institutions. It might be a friend, colleague, or a local business connection who’s looking for a better return than they’d get in the stock market. You’re not going through a bank—you’re borrowing directly from a person, typically secured by a promissory note and a lien on the property.

How It Works:

You negotiate terms—interest rate, repayment schedule, loan duration—directly with the lender. There are no underwriters or standardized approval processes. Instead, it’s about building trust and offering a deal structure that works for both sides.

  • Interest Rate: 8–12% (sometimes higher for short-term flips)

  • Term: 6–24 months

  • Secured by: First or second lien on the property

  • No income verification or credit pull required

  • Speed: You can close in days, not weeks.

  • Flexibility: You set the terms together. Need interest-only payments? Want to defer payment until the sale? It's negotiable.

  • No bank red tape: Great for deals banks won’t touch (e.g., heavy fixers or unconventional properties).

  • Higher cost of capital: Rates are significantly higher than traditional loans.

  • Relationship risk: Mixing business and personal relationships requires transparency and clear agreements.

  • Not scalable without systems: You can only raise so much capital unless you actively build a network of lenders.

How to Use It:

Private money is ideal for short-term deals like flips, BRRRRs (Buy, Rehab, Rent, Refinance, Repeat), or bridge financing between closings. Investors often refinance out of private loans once the property is stabilized or renovated

DSCR stands for Debt Service Coverage Ratio—and these loans are a game-changer for rental property investors.

Traditional lenders want to see your income, tax returns, and employment history. But DSCR loans focus on the property’s ability to pay for itself. If the rental income covers the debt, you’re in business.

How It Works:

Lenders calculate the DSCR by dividing monthly gross rent by the monthly debt obligation. A ratio of 1.0 means the property breaks even. Most lenders look for at least 1.1 to 1.25.

Example:

  • Monthly rent: $2,000

  • PITI (Principal, Interest, Taxes, Insurance): $1,600

  • DSCR: 2,000 ÷ 1,600 = 1.25 (good)

  • Down Payment: 20–25%

  • Interest Rate: 7–9% (fixed or adjustable)

  • Term: 30 years (often interest-only options available)

  • DSCR Requirement: 1.1–1.25+

  • Property Types: Single-family, small multifamily (up to 4 units), short-term rentals

  • No personal income verification: Great for self-employed investors or those maxed out with traditional loans.

  • Easier to scale: Lenders don’t cap you based on debt-to-income (DTI).

  • Long-term solution: Fixed-rate options provide stability over time.

  • Higher interest rates than conventional loans

  • Requires strong rent-to-cost ratio: Not ideal for properties in high-priced, low-rent markets.

  • Strict appraisal and rent comps: The lender needs to see verifiable rent potential.

How to Use It:

DSCR loans are ideal for buy-and-hold rental properties where you want to lock in long-term financing and scale up without the limitations of traditional underwriting. They’re especially helpful for out-of-state investors and short-term rental acquisitions.

Creative financing refers to non-traditional ways of acquiring property that don’t rely on banks or private lenders. It’s about structuring deals using existing financing or negotiating directly with the seller to create win-win terms.

Some common strategies:

  • Seller Financing: The seller acts as the bank and holds a note. You pay them monthly.

  • Subject-To Financing: You take over the existing mortgage “subject to” the original terms, while the loan stays in the seller’s name.

  • Lease Options: You lease the property with the right to purchase later, often locking in the price.

  • Low or no money down: Great for preserving capital.

  • No credit or income needed: Terms are based on negotiation, not qualification.

  • Control without ownership (in some cases): Options and seller-held notes can allow you to control a property without full title upfront.

  • Requires seller cooperation: Not all sellers are open to creative terms.

  • More complex legal paperwork: These deals must be clearly documented.

  • Due-on-sale clause risk: In Subject-To deals, lenders can technically call the loan due (though this rarely happens if payments are current).

How to Use It:

Creative financing works best when the seller is motivated, flexible, or doesn’t need their equity immediately. It’s a powerful tool for investors with limited capital, or those looking to acquire multiple properties without bank financing.

No funding option is one-size-fits-all. The smartest investors know how to evaluate each deal, understand its timeline, risk, and value-add potential—and then choose the right tool for the job.

  • Use private money to move fast, close deals others can’t, and add value quickly.

  • Use DSCR loans to build a sustainable rental portfolio without getting capped by personal income limits.

  • Use creative financing when traditional lenders or capital partners aren’t a fit, and the deal structure allows for creativity.

The more comfortable you are with these tools, the more deals you can say yes to—and the more flexibility you’ll have to build your real estate business on your terms.

Stephen Husted