Cash vs. Lending when just starting out

[Brian Garrett]

I have a fairly basic question that hopefully some of you more experienced investors can help me with. Let's assume someone is new to investing, preparing for their first deal and they have $100k cash (for simple numbers purposes and arguments sake) to invest and get started. Let's also assume they are planning to utilize the BRRRR strategy for their initial investments.

Is it better to buy a property in cash, pay for the rehab in cash and then do a cash-out refinance as soon as possible to pull that original investment back out and roll it over into a new property and then continue leveraging that same initial investment this way you're ultimately saving on interest, points and holding costs associated with a loan? This is assuming you bought the deal right and were thorough with your numbers during your original due diligence prior to purchase of course.

Or is it wiser to spread that $100k cash you have to invest among multiple 25% down payments on properties via lending so that you can scale quicker by utilizing leverage from the start on each one and not have all of your cash sitting tied up in one project until you can cash-out refinance?

I would think the cash route might be better for a "newbie investor" since their overhead is ultimately lower and they don't have interest and all the other fees associated with a loan so if the first deal takes a little longer to complete it's not costing them a fortune in holding costs.

However I also think that limits the ability to scale at a faster rate and I see the potential advantages in leveraging right from the start so you have more diversity and can start building up your investment portfolio quicker. Remember this is just a hypothetical scenario to help me learn.

What are your thoughts on this? Would it be the same for flips as well or would your answer/opinion change based on the investment strategy? (I.E. Flip vs. Rental)

Thanks in advance as always and I appreciate all input, insight, feedback and advice!