Financing question - taking a loan vs. using up all our cash?

[Manish A.]

A friend and I are considering buying, demolishing, and building a home from scratch. We live in a pretty hot and competitive market. We have a moderate amount of cash reserves.

We are both new to the lending process. Which of the following is a better approach?

1) Using up our cash to purchase the home without financing, and then taking a equity loan on the property (if needed) and obtaining a residential construction loan. Would taking an equity loan on the property even be possible if the plan was to demolish it?

2). Assuming we qualify, obtaining a construction loan to finance both the purchase of the home and the construction costs?

Can anyone mention a couple of advantages / disadvantages of the above 2 approaches? Wouldn’t using the first route give us a competitive advantage in being attractive to the seller to be able to buy quickly all cash, or does that not matter so much?

Would a reasonable next step be to meet a lender and discuss possible future plans, or is it too soon to meet a lender? 

Thanks in advance for any advice!

Miz