First one in the books, now what? BRRRR Strategy

[Vince Abernathy]

BRRRR Strategy - First property.... I was unaware about the 6th month seasoning requirement by most lenders, but I found two that would refi after the rehab is completed. What would you do in this situation or is there another option I am not seeing?

Purchase price: $137,500 ($44,000 in to the property... loan at $101,000)
Appraisal: $180,000  
ARV: $195,000
Est rehab cost: $7,500

Scenario #1: 75% LTV cash out refi at 4.25%...
Cash out: $45,250
$6,250 still in the property.... principal and interest $719/month
Cash flow estimated at roughly: $250/month

Scenario #2: 80% LTV cash out refi at 4.25%... 5/1 ARM mortgage. Prepayment penalty appears to only be in the first 3 years.
Cash out: $55,000
All money out plus roughly $3,500 in pocket.... principal and interest $767/month
Cash flow estimated at roughly: $200/month
My plan would be to refi around year 4 or so before the adjustable rate kicks in.

Is ARM too risky or my plan should work roughly as expected? Did I miss anything on the ARM? Any help is much appreciated! Thank you

[William Sing]

Hey Vince!

Nice job getting a good return either way! As for the situation, what are you trying to optimize for? If you are looking to pull more cash out I'd go with the second option. If you are looking for more cash flow, the first option would work best. 

It'd take ~16 years to get the same cash out from the first scenario as the second (~10k). If you are trying to build your portfolio faster I'd probably go with the second scenario. I would see what the potential fees would be for refinancing though. That might change things a bit more.