Need advice for starting out with cash but poor credit.

[Jonathan Studdard]

 trying to customize the best strategy for my first flip given my situation.  I've gotten a ton of useful info from BP and this is where I'm currently at. My credit is in the mid-to-high 600's. I have enough cash to put a down payment on a mid-sized single family home, as well as cover the cost of a whole home remodel if I needed to, but I'd be using a lot of my own cash doing both, an idea we aren't too fond of. I own my home, but don't have much equity in it yet and paying off my mortgage would require most of my cash, so I've ruled that out for now. Where can using cash save me the most money or give me the most profit? Should I try to go for more of a fixer-upper and use more cash for a better rehab? Or would it be better to put more down on a property, etc?  

[JD Martin]

There's lots of unknowns. Does your cash arsenal include your safety net to cover your own costs of living? If so, you need to subtract that from the equation. 

If it were me, and I had enough cash after setting aside living expenses (everyone says 6 months, I like 1 year), I would look to get into something for less money and make up the difference with sweat equity. The more you can make the first/second houses work by putting in your own labor, the further you can turn that into exponential cash wherein you won't have to do all the work yourself and can expand your portfolio. 

When you are first starting out, and are not named Donald Trump, the only things you have to offer is whatever capital you can scrounge up and whatever someone will pay you for your back or your mind. If you buy a house at $40k, can put $20k in materials and $20k in labor (i.e., yourself) into it, and you can clear $100k after costs, you have just leveraged your $20k in labor (i.e., your part-time job that the buyer paid you for) into another $20k for your mind (i.e. your idea/strategy of fixing/flipping the house, adding value into the equation). Now you have your $40k back, and an additional $40k for your trouble. Alternatively, if you are renting the property, you should see a significant premium increase for your rehab efforts, in which case you will get paid for your back & your mind over time and will still own the property - win/win!

I believe this works best on a cash basis when you are first starting out, because you can make mistakes and not be bankrupted, i.e. you don't have a lender breathing down your neck. Once you get your sea legs, you can begin leveraging what you have to expand even further.