Buying with cash without refinancing issues

[Alex T.]

In real estate there are a couple things rookie investors notice pretty quickly:

- Paying cash is more attractive to the seller and tends to get the deal closed sooner (which could translate into a discount or winning when there are multiple bids)

- Refinancing (pulling the money out) becomes more painful if paying cash, many banks don't offer delayed financing (https://www.fanniemae.com/content/guide/selling/b2...) and those that do require more hoops to jump through, require 70% loan instead of 80% and don't allow you to extract repair costs

I've actually been bitten by this refinancing issue with my first purchase in Chicago.

This really hurts rookie investor's ability to start acquiring properties because we don't yet have good connections with hard money lenders/portfolio lenders, enough extra cash of our own to buy multiple properties outright, or enough properties purchased to stagger refinancing such that this doesn't affect us. This also prevents us from buying a property that needs extensive repairs since we won't be able to pull out any of the repair costs.

However, there seems to be a simple workaround for this and I wanted to ask others if it's a legitimate strategy or if I'm being naive and overlooking something. The strategy involves two investors deciding to invest in the same market. Investor A purchases a property for cash, and completes a rehab with his own cash. Investor B does the same thing with a different but similar property. Afterwards investor A sells his property to investor B and investor B in turn sells his property to investor A, with both using conventional financing. This strategy is then repeated as long as both investors have cash reserves and have fewer than 5 properties each. Is this allowed? Is there something that would prevent this? Is there anything I'm overlooking aside from having to pay for property title twice?

Thanks