FHA vs. ARM for duplex

[Sharon Ho]

Hello! I'm new to real estate and planning to purchase a duplex to owner occupy as a first home purchase. I'm currently talking with lenders to get an idea of the loan options available to me and have narrowed it down to two. Hoping to get some insight from more experienced real estate investors. I intend to buy/hold, but never know what the future may hold. Let's assume the property is $300k. I've made the numbers as accurate as I could. 

1: FHA: 3.5% down, 2.8% 30 year fixed, $205 PMI, $16k funds to close, $2015 monthly payments

There is an option for me to "buy up" my rate if I need help with closing costs. I can buy up to a max of 3.5%, giving me around $8k to use for closing costs, if needed. I won't need $8k.

2: ARM: 0% down, 3.5% 10 ARM (amortized over 30 years), $0 PMI, $0 funds to close, $1980 monthly payments

This is divided into 2 mortgage payments - $270k at 3.5% and $30k at 4%. When it comes time to refinance ARM loan, caps are 2/2/6 - 2% the first year over the start rate; 2% every year thereafter to a max of 6% over the start rate. I would refinance to a fixed-rate loan.

My situation - I currently have the funds needed to close (~$16k) with the FHA loan, but I won't have much left over for emergencies. One unit currently has a signed lease until next year, covering the majority of the monthly payments. I anticipate finding roommates to cover the rest and more. Once I move out, the two units will generate a solid monthly cash flow (after all expenses, capex, vacancy, etc.) for both loan options (~$100 more with FHA). ARM cash-on-cash return is much higher given the 0% down. If I go with ARM, I will have a healthy reserves fund starting out and cash available for a down payment for the next property (~1 year later).