30yr Fixed vs 7yr Arm

[Ashly Frasso]

Hi BP Team,

I have an investor in the middle of his BRRRR and would love your input.

He purchased a duplex for $1.1mm. He financed 80% with a 30yr fixed at 3.75% and hard money loan for the balance at 3% for 2years. After rehab the value is around $1.6mm. He lives in one. The rent of the 2nd unit only covers the conventional loan.

Which option would you recommend or is there another option I can present him?

Option A:

Refinance to a 7yr ARM at 3.25% and use the equity to purchase another profitable multi-family.

Option B:

Keep the current 30yr fixed at 3.75% and re-negotiate terms on the hard money loan.

[Alex Bekeza]

@Ashly Frasso I think there is some misunderstanding.  Nobody really writes hard money loans at 3% nor would they renegotiate the rate at any point during the duration of the loan unless perhaps this was a private note from a generous family member or something.  Whatever the case may be it seems best to payoff the hard money lender so that there is no ballooning note and use the proceeds to purchase another property.  However, this isn't really something he's likely to find today.  Jumbo programs have all been suspended at the moment due to the coronavirus and the ripple effect it's had on the lending industry/economy as a whole.  Wells Fargo, UWM, and the nation's other largest providers have all suspended jumbo loans so there is no existing option for this $1.2MM loan scenario in the rate range you're describing.  

However, hopefully this will change in the next few weeks/months!  Happy to chat more anytime.