how to finance your first real estate deal

Real Estate Jun 9, 2025 214 Add to Reading List

So you’ve decided to step into the world of real estate investing. That’s exciting! But the first (and often most intimidating) hurdle is figuring out how to finance your first deal.

The good news? You have more options than you might think—even if you don’t have a huge amount of cash saved up.

This guide will walk you through some of the most popular and practical ways to fund your first property, with tips to get you started even if you’re a complete beginner.

Understand Your Financial Position First

Before diving into loans or lenders, start by assessing your own finances. Ask yourself:

What is your credit score?
How much money can you afford to invest?
Do you have stable income or assets?
Are you willing to take on debt?

This initial step helps determine which financing options are open to you and prevents overextending your budget.

1. Traditional Bank Loans

One of the most common ways to finance your first real estate deal is through a traditional mortgage loan.

Pros:

Lower interest rates
Predictable monthly payments
Easy to qualify with good credit

Cons:

Requires a good credit score
Typically needs 10%–20% down payment
Slower approval process

If you’re buying a single-family home or duplex to rent out, most banks will treat it like a residential loan. For larger properties (5+ units), you’ll need a commercial loan.

2. FHA Loans (For House Hacking)

First-time homebuyers often qualify for an FHA loan (Federal Housing Administration), which lets you put down as little as 3.5%.

Here’s a creative trick: Buy a 2–4 unit multi-family home, live in one unit, and rent out the others. This strategy is known as house hacking.

Pros:

Low down payment
Easier credit requirements
Great for beginners with limited cash

Cons:

You must live in the property for at least 12 months
Property must meet FHA inspection standards

3. Hard Money Loans

Hard money loans are short-term loans from private investors or companies. These are ideal for fix-and-flip projects or deals where speed is essential.

Pros:

Fast approval (within days)
Less focus on credit score
Can finance renovation-heavy deals

Cons:

High interest rates (10–15%+)
Short terms (6–18 months)
Must repay quickly or refinance

These loans are riskier but valuable when you need funding fast or plan to sell the property quickly.

4. Private Money Lenders

Private lenders are individuals (friends, family, colleagues) willing to invest in your deal for a return.

You can structure the deal in many ways: as a loan, a partnership, or profit-sharing.

Pros:

Flexible terms
Builds personal investor network
No banks or formal underwriting needed

Cons:

You need to find willing investors
Risk of damaging personal relationships if things go wrong

Tip: Always use a legal agreement to avoid misunderstandings.

5. Seller Financing

In some cases, the property seller can finance the deal for you. You pay the seller in monthly installments, just like a mortgage.

Pros:

No banks involved
Flexible down payments and interest
Good for buyers with limited credit or income history

Cons:

Not all sellers are open to this
Interest rates may be higher
Requires negotiation skills

This works best with motivated sellers or properties that are harder to sell traditionally.

6. Real Estate Partnerships

If you lack funds but bring skills or time to the table, consider forming a partnership.

You can partner with someone who has the money, while you handle the deal finding, management, or renovations.

Pros:

Leverage other people’s capital
Share risk and responsibilities
Great way to learn on your first deal

Cons:

Must split profits
Requires legal agreements
Possible conflict if roles aren’t clearly defined

Clear communication and expectations are essential in any business partnership.

7. HELOC or Home Equity Loans

Already own a home? Tap into its equity with a Home Equity Line of Credit (HELOC) or a home equity loan.

Pros:

Access to large sums at low interest
Great for down payments or renovations
Revolving credit (in HELOCs)

Cons:

Risk of losing your primary residence if you default
You must already own a property
Market fluctuations can affect your equity

This is a popular choice for people looking to build a small portfolio.

8. Crowdfunding & Real Estate Platforms

Real estate crowdfunding lets you pool money with other investors online to buy a share in a property. Some platforms include:

Fundrise
RealtyMogul
Crowdstreet

Pros:

Low entry barrier (some start at $500)
No property management
Diversified investments

Cons:

Limited control over property
Returns vary
Illiquid—your money may be tied up for years

While not traditional ownership, this can be a good starting point to learn the ropes.

Tips to Strengthen Your Financing Chances

Here are a few smart moves to improve your odds of getting approved:

Improve your credit score by paying off debt and keeping balances low.
Save for a down payment—the more you put down, the better your terms.
Get pre-approved to show sellers and agents you’re serious.
Create a business plan or deal analysis if approaching private or hard money lenders.

Final Thoughts

Financing your first real estate deal might feel intimidating, but once you know the available options, it becomes manageable—even exciting. Whether you go with a traditional loan, use creative financing, or build partnerships, there’s a path for everyone.

Start small, do your homework, and focus on finding the right strategy for your unique situation. Remember: your first deal is just the beginning of a rewarding real estate journey.