5/1 ARM or 30 year fixed??

[Bryan Wegman]

I'm closing on a buy and hold property mid January 2019. My current finance options are a 30 year fixed at 5.75% or a 5/1 ARM at 5.0%. I'm curious what you all think is a better option? Details: 4 bedroom 1.5 bathroom. Purchase price is $135,000. I'm putting down 20%. Rental income should be $1700/month. So it should cash flow around $350/month. I'm getting the property under market value and there is potential to add a little bit of value by converting an attic space into an additional bedroom along with some minor improvements throughout the house. So I may be able to BRRRR with this property as well. So what do you all think is the best option? Thanks in advance for your input!

[Rick Kim]

@Bryan Wegman Strictly based on the current interest rate environment and the rising 10 year US benchmark rate, the 30 year fixed option may prove to be more beneficial than the 5/1 option. More importantly, however, it really depends on your investment timeline; if you plan to portfolio the property for the longterm (at least 10 years), the 30 year fixed is the way to go. Also if you choose to refinance someday, seasoned mortgage loans can easily fetch more competitve rates in the future. In the short term, you must factor in finance costs each time you refinance. Even if you're in it for the short term, in today's rising rate environment, the 30 year option is your best bet.