Financing my first rental

[Jeff Ostrander]

I have a question on financing. I’m trying to determine the best of the two following options for financing a property that I’m buying for 130k.

1. Financing 75% at fixed 5% over 30 years. $36k up front cost.

2. Paying cash up front and then refinancing at 85% of appraisal which we think will be around 150k. It'd be a 5yr ARM at 5% with 25 yr amortization. About $12k up front.

Would the security of the fixed loan or less cash invested be the preferable option? This is my first deal but I would like to grow quickly so I’m leaning on option 2 but the somewhat conservative side says to go with 1.

[Polo Vazquez]

Pay cash up front then refinance 75%. Paying cash up front will help you get your offer accepted then if it really appraises for 150k that would mean you would get back about 110k making it a better option than option 1 because you would only leave 20k in the property instead of 36k.

That's what I would do if I had the cash to do it.