Creative Financing Strategies for Landlords (With Ben Stef)

Introduction

The real estate industry has changed quite a bit in the last six years—COVID-19 ushered in record-low interest rates for homebuyers that are unreachable in today’s market. Many investors with equity in their properties are unsure how to expand their portfolio using traditional methods, seeking out more creative financing strategies for new property purchases.

To learn more about potential financing options, we spoke with Ben Stef, a mortgage loan advisor and the founder of Funding Freedom. During our exclusive REI Grove webinar (which you can watch for free here), Stef walked us through several creative financing real estate strategies, including DSCR loans, HELOCs, and hard money, all designed to help you purchase properties quickly and maximize your profit.

With Stef’s expertise, he says these outside-the-box methods tend to be successful for landlords using the BRRR method and recycling their equity to grow their portfolio:

This is how a lot of investors right now that I’m helping are going from two rentals to ten rentals in a short amount of time.

Why Investors are Getting Stuck

Since the 2020 housing market began morphing into where it currently stands, some investors have been struggling to make deals and expand their portfolios. Some of this stems from inventory issues—at a national level, the market is down 7.7% from pre-pandemic inventory levels, making it much more difficult to find good properties in your area that meet your needs.

Another major issue that’s keeping investors stuck is their cash flow and equity being trapped in their homes. Let’s say you bought a home in 2020 when mortgage rates were generally around 3%. Now, in 2026, you’ve got a mortgage that you don’t want to change and growing equity in the home. You have the money you need for a new property, but since it’s wrapped up in equity, that money won’t show up on paper to prove to lenders that you can afford it.

So, where can investors go from here when traditional financing methods seem out of reach? Stef has several creative strategies to help you move your business forward without worrying about traditional options.

Types of Creative Financing Strategies

Aside from traditional financing options for your rental properties, there are other innovative methods that can help you purchase more units and become more profitable despite the current market struggles.

Below are the “three pillars” Stef recommended as potential financing options for landlords looking to expand their portfolios.

DSCR

The first method is a DSCR loan, or a debt service coverage ratio. With this method, a lender will be looking to see if the property more or less pays for itself at a one to one ratio. Imagine you’ve purchased a property with rent priced at $3,000 a month. Your monthly mortgage payment for the unit is $2,460. This leaves you with a 1.2 ratio, which is right in the range a lender is looking for (1 to 1.25). This unit would be perfect for a DSCR loan.

DSCR loans offer much more freedom and flexibility with financing than traditional methods since they don’t look into your personal finances. They don’t check tax returns, personal income, proof of employment, etc., opting to instead check for a 20% down payment, your credit score, and your reserves.

The lender also doesn’t check if the property is vacant or not. If there is no tenant in the unit, they can use a rent evaluation to estimate what the monthly gross rent would be if a tenant were occupying the unit, allowing you to obtain a DSCR loan even with a vacancy.

HELOC

There are two options in this category: the non-appraisal version and the DSCR HELOC. Both work differently but are successful ways to finance your property and access your equity to use for other purchases.

Non-Appraisal Version

This method allows you to access money without having to wait for an appraisal, cutting the timeline down significantly and secure your deal. With traditional appraisals, you may have to wait 4-6 weeks to get an appraiser out, get a report sent, and get money in your hands.

With a no appraisal loan, software can estimate the value instead of an appraiser, allowing you to get the money you need for a deal in days rather than weeks. If you’re in a fast-moving deal, this may be the best way to get approved in a timely manner.

This method is one of Stef’s favorites:

I’ve got so many investors right now that are using this that were denied at three, four other banks. I kid you not, this product works, and it’s very, very effective.

DSCR HELOC

With this method, you as the investor can open up a line of credit to use to tap into equity without selling your property. Stef describes it this way: “If DSCR loans and HELOCs made a baby, that’s what this program is.”

With a DSCR HELOC, you can pull money out whenever you need it, and you only pay interest on money that you actually use. Once you pay it back, you can borrow again and repeat the process as many times as you need, allowing you to keep your low-rate first mortgage—and none of it requires a bank looking at your debt-to-income ratio.

Hard Money

If you’re buying a property that needs to be flipped before it can be profitable and you need money to finance that flip, you may look towards hard money loans as a starting point. A hard money loan uses the value of the property as a baseline rather than your credit score, making it easier to get the loan with the tradeoff of higher interest rates.

These are meant to be quick, short-term loans that help fund a renovation before swapping out for a DSCR or other type of loan. Hard money is meant for use as a quick way to get cash rather than a long-term financing solution for your properties, but the effectiveness makes it a great way to start a purchase when using the BRRRR method.

BONUS: Seller Financing

Though not one of the three pillars, another effective way to finance a property is with seller financing. What is seller financing, you may ask? Why might investors want it, and how does seller financing work?

Seller financing is when a seller, rather than a traditional lender, finances the property for the buyer. This eliminates the need for appraisers and inspections, as well as the need for traditional lending and mortgages. This method is very effective for investors, but can be difficult to get sellers to agree to.

Many sellers are looking to sell either to buy a new property, be completely done with their current one, or to just collect their cash for other purposes. This makes sellers typically less open to financing the property for the next buyer, but depending on the situation, they may agree to it regardless.

If a seller is having trouble getting rid of the property and you come along with an offer that includes seller financing, they may be more open to the idea than a typical seller in a competitive area. While this method can be more difficult to pull off, it’s extremely effective when done right.

Stef does emphasize that if you do seller financing, it’s important to still make it a legally binding agreement. Don’t just shake hands on a loan like this—lay out your terms in a contract, just like you would with a traditional loan.

New Way to BRRRR

What’s even better than using one of these methods? Stacking the three pillars and using them in tandem. Most investors are familiar with the BRRR method as a way to acquire properties, force appreciation, and access equity—buy, rehab, rent, refinance, repeat—but that same method can be used with these financial strategies, too.

Start with hard money, finding a good deal to purchase a property that needs some fixes and upgrades. Once you force the appreciation of the unit, you can either refinance with a DSCR loan or open a line of credit to access the equity from the property. That equity can then be used for your next deal, allowing you to rinse and repeat the method and grow exponentially.

Stef praises this new way to BRRR:

I think right now, if you could find the deal, rehab it, take out a line of credit, or do a cash out, and then do it again, that right now is a godsend. It’s so effective.

Mistakes to Avoid

While these financing methods can be very effective if used correctly, there are some mistakes you should avoid in order to keep your business profitable and your portfolio strong. Let’s walk through four mistakes Stef warns investors about:

1. Buying someone else’s problems

When searching for a new property, it’s okay to look for places that need some maintenance or renovation. However, it’s imperative that these changes will add value to the property rather than fix a baseline issue.

For example, a property with plumbing issues will force you to sink money into fixing it, but won’t add value once the problem is solved. Conversely, a property that needs a kitchen update will have expenses but will ultimately increase the value. When investing, always weigh the pros and cons of flipping a home to be sure the fixes will make the unit more valuable.

2. Thinking bank approval equals a good deal

When making a deal for a new property, investors may think that if the bank approves the sale, the deal is automatically a good one. If you’ve made a deal that is subject to financing, then you qualify for a loan from a lender with a terrible interest rate, the bank won’t veto the sale to find you a better deal; they’ll approve it and move forward.

It’s up to you and any financial advisors you may have to find the best deal for your money, so check every avenue and option before making an agreement.

3. Not having enough liquidity

Money is the key to moving your business forward and helping it grow. That’s why it’s extremely important to make sure you have enough cash flow or accessible equity when you’re rehabbing a home or making a purchase. Not having movable money can stall or even kill a deal or a renovation you’re working on.

4. Playing offense before defense

Many investors just starting out are excited at the idea of purchasing their new properties and getting them fixed up and occupied. Jumping into a purchase too quickly, or “playing offense,” can easily make you go broke.

Stef recommends making sure your credit, income, and assets are all in order before you step into the market looking for a new property. Having strong credit and money set aside will help you qualify for loan programs to make deals run smoothly.

Conclusion

Financing a new property looks different for everyone, so it’s imperative to be certain your finances are in order and the deal is good before you attempt to use any of these methods for your own rental business. However, with the right plan and guidance, you may find these strategies to be extremely effective.

For more expert insight from Ben Stef, you can watch a recording of our webinar Creative Financing Strategies That Actually Work in Today’s Market on REI Grove or visit the Funding Freedom website directly to create a custom financing plan to simplify your next property purchase.

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FAQS

What are creative financing strategies for landlords?

Creative financing strategies are alternative ways to fund real estate purchases beyond traditional mortgages. Examples include DSCR loans, HELOCs, hard money loans, and seller financing.

How can a HELOC help real estate investors?

A HELOC allows investors to access equity in an existing property without selling it. The funds can then be used toward renovations, down payments, or additional property purchases.

How can creative financing support the BRRRR strategy?

Investors can use hard money to purchase and renovate a property, then refinance with a DSCR loan or access the property's equity through a HELOC. That money can be reused for another investment.

What mistakes should landlords avoid when using creative financing?

Landlords should avoid buying properties with problems that don't add value, assuming loan approval means a deal is good, running out of liquidity, and expanding before their finances are in order.

What is a DSCR loan?

A DSCR loan is based primarily on a property's ability to generate enough rental income to cover its debt payments, rather than the borrower's personal income.