If your guy is preapproved for a loan, his bank most likely isn't going to fund the deal with income like this for the reason that you mentioned, free cash doesn't even cover debt service.

I will then take the money earned from that and apply it to the next one and so on.This is called the debt snowball and it’s what works for me.

Plus, it lets all these newer concepts & formula marinate in my head as I figure out some key items ... mainly thinking through on what kind of real estate investor I want to be, what kind of portfolio I wish to build, and can I analyse deals properly. 

We currently own and manage 3 other rentals but out debt to income is high so conventional/bank loans are not currently an option for us.

I'm currently working under a general contractor by day, a job I took with the intention of getting into fix & flip, which will be my main strategy for the first while.

My advantages that I know of are my ability to get a mortgage (W-2 income, credit, and debt ratio are all good), having enough cash and house equity to get a 25% down non-occupied loan on a SFH or duplex (in my market), willingness to sell and move to house hack a 3-4 unit, understanding the fundamentals and math of small residential REI, love of learning "systems", and being a complete badass at life in general ;)My disadvantages that I know of are that I don't have experience yet in buying/managing rentals, and I haven't met enough other investors to learn about a lot of deals early in the pipeline.What would you do in my situation?

I may be wrong, but I'd be surprised if a collection company would buy a debt that isn't reduced to judgment. 

If I were investing out of my market I would be a lot more sophisticated in my research. mainly I would be watching job growth.

Torrance currently has zoning code that covers accessory dwelling units (ADUs) that I would like to take advantage of to permit the rec room as a dwelling so that I can live in it and rent out the main house.

I’m getting started with a few business ventures, mainly Airbnb and BRRRR.