First deal, lending terms changed

[Jerry Stein]

Newbie looking for some thoughts. 

I am under contract with a financing contingency based on the loan estimates I had received when I was evaluating the deal. My lender can no longer offer the financing product we were working with (and was written into the contract), and has suggested other options, including a few different ARM products.

Based on the products we are working with now, the CoC return for this STR has gone from 20% to 16.7%. If I were evaluating this deal from scratch, it wouldn't have made the cut for putting in an offer - 20% was my cutoff, and I wasn't considering ARMs for financing. My estimates of revenue come from comps that are similar using Pricelabs, and this is the CoC is based on the slightly better than average revenue numbers.

Numbers are numbers. I know everyone is different, but wondering how folks would approach this situation, what things would you consider in deciding whether to move forward?

[Doug H.]

I would look at your market.  

If the market has reasonably high appreciation (San Diego, Phx, etc.), a 16% CoC is a solid. More importantly, you will probably cash out refi in five years, so the overall loan terms are less important than the monthly payment.

If the market is low appreciation. (Indiana), I would seek the 30 yr and lock in. 

Either way, you are really looking for the lowest monthly payment to return the highest cash flow. 

IMHO