30yr fixed or 7/1 ARM?

[Nic S.]

Mortgage advice: would you do a 30yr fixed @ 4.5% or 7/1 ARM @ 4%?

Property 4 & 5 in portfolio with a purchase price of $155k.

Previous properties are on 30yr fixed. Lender says at my current pace, I will be at 10 properties in personal name and will need to move to a portfolio lender in next two years. Thus yielding the 7/1 ARM

more cash flow positive.

I’m a buy and hold investor and don’t like the idea of being forced to account for rate adjustments after 7 years. But if I get to 10 properties in less than 7 years it’s a mute point. What would you do?

[Joseph Cacciapaglia]

I'm a huge fan of ARMs. If you're focused on maximizing your return on equity, then you are probably going to exchange the property or cash out refi long in 7-10 years anyway. Unless mortgage rates go up a ton, it doesn't make sense to pay them off completely, when you're looking at total returns. That means, you're paying an additional 1/2% interest for no real reason. If you are one of the ultra conservative, pay off debt, and don't worry about ROE, then the 30 year makes sense. Otherwise, I take the ARM whenever there is any real interest rate difference.