Rebuilding dilapidated urban structures requires significant financial resources and active public sector participation, but municipalities face serious challenges in this process. Budgetary constraints, unstable revenue sources, dependence on the government, diversity and mandatory nature of services, unforeseen costs, and lack of financial foresight are among these challenges. This qualitative study with a data-driven approach focused on the Municipality of District 1 of Tehran and, through in-depth interviews with 20 managers and key experts and data analysis with MAXQDA software, has presented a comprehensive model of the financial challenges of public participation. Causal factors include limited support resources and diversity of services, contextual factors include limited budget, extensive tasks and financial dependence, and intervening factors include inflation, unpredictable losses, and lack of coordination between agencies. Suggested strategies to overcome these obstacles include designing sustainable financing programs, reviewing laws, facilitating administrative processes, stabilizing financial policies, encouraging private sector investment, and strengthening residents' emotional attachment. Implementing these measures can lead to improved municipal performance, increased citizen satisfaction, employment and housing growth, enhanced urban beauty, and reduced energy consumption. Ultimately, for success in renovating dilapidated urban areas, structural and sustainable government support and simplification of administrative processes are essential.