My wife and I live in San Francisco and we're looking to buy our primary residence sometime this year. We have a couple options I'd like to run by you guys to see what you think would be best.

1. $650K SFR: 10% Down at 4.7%, 30 Yr. Fixed with no points, origination fees or PMI
2. $1M 2 Unit building: 0% Down at 5.625%, 30 Yr. Fixed with .25% points and no origination fees
3. $1M 2 Unit building: 0% Down at 3.675% 5/5 ARM with no points, origination fees or PMI.

The SFR would not be in as nice of an area and would require more cash up front meaning we would need to wait until closer to the end of the year to buy, during which time prices could go up another $20-40k.

If we did the ARM and bought a 2 unit building with a least 2 bedrooms per unit, we could buy it now and pretty conservatively pull in ~$2800 in rent for the second unit. If we budgeted about the same price for our unit (about what we pay in rent now anyway) we'd have about $900 extra each month before expenses.

My feeling is the ARM would allow us to pay less for more house in a better area... Realistically we probably wouldn't own the building longer than 10 years anyway. We could still do a 30 yr. fixed for a $1M 2 unit, but the interest rate is so much higher it seems like it'd be better to take the lower payment for 5 years and stick all that extra money towards the principal.

Curious what other people in SF think.