ARM vs fixed rate mortgages

[Julie Jenkins]

In my search for lenders here in Nashville, it seems as though there are two options each with varying terms from lender to lender. There is usually some kind of fixed rate mortgage I can obtain (80% of purchase price, 70% of ARV, etc) or some kind of ARM. I always cringe when they talk about the ARM because it just seems so risky. Can someone play devil's advocate here and tell me why an ARM may be beneficial to me as an investor? It seems like if I were going to sell in a few years before the renewal period that would be the way to go but not if I want to hold these properties for the long haul, right? All feedback appreciated!

[Andrew Johnson]

@Julie Jenkins I don't like ARMs but in commercials loans there's usually not an option for a 30-year fixed rate. So you get a fixed rate for 5-7 years with a balloon payment. The hope/plan/goal is to get a new mortgage then at the current prevailing rate, rinse and repeat. The nice thing about ARMs is that they're usually a little cheaper. So a common theme among BP members (and those active in the forums) is that I'm going to buy property X and then 1031 into a larger/more expensive/etc. property Y in the future. If the "future" is likely to be 3-5 years then I can completely understand why they'd choose an ARM. Why not capture the increased cash-flow that comes with the lower rate? For me (a buy-and-hold investor) I want to lock in money now for 30 years. Sure, there's a chance that interest rates will go down in the future but I wouldn't bet on it. If they do, I can refinance at that point. if they don't, I've locked in my mortgage payment.