Should I "buy down the rate" by paying mortgage points?

[John G.]

Details... I have a quoted rate of 4.75% with paying just a hair under one point or $723. And have the option to buy down the rate to 4.25% by paying 3.121 points (an additional 2.134 points / $1,562 cash at closing). This is a 30 conventional on a SFR rental property.

Recoup time of cost of Discount Points: 72 months (6 yrs).

Additional monthly cashflow: $21.75

My investment strategy: Long -term buy and hold. Goal #1: $100k annual in "passive" rental income.

I'm leaning toward buying down the rate since I plan on holding on to this longer that the 72 months recoup. I think it's a good idea, but I'd like some feedback from experienced investors since this is my first investment. Thanks!

[Steve K.]

Originally posted by @John G.:

Great info guys! Still struggling, but I have a better handle on this now.

It just occured to me that that $22 could just be covered by a rent increase in a year or two anyhow.

John, I'd encourage you to begin to think of these things as being independent of each other. You can raise the rent (and keep the extra profit). Separately, you can investigate points vs. $22/mo.