25% down smarter for a rental property?

[Jonathan Warner]

I've been getting the advice that putting 20% down, when available, is a smarter choice than putting 25% down, all in the context of rental property purchases. The reasoning seems to be that a) 20% down keeps more cash free for additional investments, and b) it takes longer to cover the initial investment with cash flow. 

However, when the lower interest rate with the 25% downpayment is taken into account, my numbers keep showing that Cash on Cash return is better in the 25% scenario and in fact the initial investment is paid off earlier. If an investor is paying off principal with the cash flow, they will sooner arrive in the place where no debt service is required, and that extra/earlier cashflow in the 25% scenario seems to far outweigh the advantage of being able to buy more property with the additional leverage in the 20% scenario. 

What am I missing? Thanks in advance for your financial genius...

Example numbers (commentable Google spreadsheet here):

Scenario	20% Down	25% down
Purchase Price	$100,000	$100,000
Monthly Rent	$1,000	$1,000
Monthly Expenses and Vacancy	$400	$400
Net Operating Income and Cap Rate
Total Annual Operating Income	$12,000	$12,000
Total Annual Operating Expense	$4,800	$4,800
Annual Net Operating Income	$7,200	$7,200
Capitalization Rate	7.20%	7.20%
Loan Information
Down Payment	$20,000	$25,000
Loan Amount	$80,000	$75,000
Lender & Title Fees	$2,000	$2,000
Length of Mortgage (years)	30	30
Annual Interest Rate	5.5%	5.0%
Initial Investment	$22,000	$27,000
Monthly Mortgage Payment (P&I)	$454	$403
Total Annual Debt Service	$5,451	$4,831
Cash Flow and ROI
Years to repay initial investment	12.6	11.4
Total Monthly Cash Flow (before taxes)	$146	$197
Total Annual Cash Flow (before taxes)	$1,749	$2,369
Cash on Cash Return (ROI)	7.95%	8.77%

[Andrew Postell]

@Jonathan Warner the crux of this decision relies on if you want $5,000 now....or wait 8 years for $5,000.  Meaning that the difference in your payment between the two options is $51 ($454 minus $403).  The difference in your out of pocket between the two options is $5,000 ($20,000 minus $25,000).  It would take you 98 months of saving $51 per month ($5,000 divided by $51) to get to $5,000.  So 8 years (98 divided by 12).  Do you want $5,000 now or wait 8 years for it?  Oh, and if someone comes by and offers you a price you cannot refuse at the 7 year mark, and you sell the house....then you lose choosing to wait 8 years.  It sounds weird but it almost always makes more sense to get your money now, even if you are borrowing at a higher rate to get it.  Hope this helps but tag me if you have any other questions.  Thanks!