Pay full price to avoid financing costs?

[Tony Hill]

I'm currently in the education phase here and had an idea that I think is good, but not sure...

Hypothetical situation: While in the early stages of my investing career, with little track record to approach private lenders with, having $150k to start with, could it be a good idea to find a $120k property, pay cash, spend $20k on rehab, and sell at $170 ARV as quickly as possible?...thus maximizing profit by avoiding having to deal with a lender or pay the costs that go along with financing. This would give me an advantage because I could break the 70% rule (this deal comes in at 82%), allowing me to buy properties that other investors wouldn't touch because they need to account for financing costs.

My initial thought was that this is a bad idea because it ties up a lot of cash and would limit my exit strategies to just one: fix and flip, but I think that's not true, because I could always finance 80% of the appraised value and turn it into a cash flowing property by renting or lease option.

As always, the money is made when you purchase, so I would have to do the due diligence to ensure that the fallback option is truely viable. But, assuming Plan A (fix and flip) works, this seems like a nice way of reducing work and maximizing profits. While growth may not be as explosive as it would by doing as many deals as possible with the money available, this seems like a rather efficient way of going about it. Also, I initially thought that this is not vary scalable beyond a certain point, but I think that is also incorrect. The big players do exactly this all the time, the larger scale simply involves a bigger team.

Thank you for any response/correction!

Cheers

Tony