Cash vs. Financing rentals help

[April Hamm]

I'm stuck in a bit of an internal debate between paying cash for rentals or financing them with 20-25% down each.  I know the pros and cons of each, but does anyone have a good calculator or spreadsheet they could share to compare the two options?  

[Joe Villeneuve]

There's only one calculation you need to know...and that's "how fast do you ,if ever, recover your cost". Keep in mind, you don't make any money (remember, this is supposed to be an investment) until AFTER you have recovered all of your cost. Your cost is ONLY the cash that comes out of your pocket. So, the lower the down payment, the less "cost" there is to the REI. This of course also means you have to also have positive cash flow while holding the rental. If you have negative CF, then the Negative cash flow number adds to your cost. When you pay all cash, you have the highest cost to the REI.

Now, like any other business, profit is made ONLY AFTER you have recovered ALL of your cost.  Cost recovery only comes in the form of cash flow, so the faster your CF recovers your cost, the sooner your profit starts.  This is why you should always (notice I didn't say "almost always") use leverage...and the most leverage you can.  The less cash you use, means the faster you get to profitability on your property.

As a spinoff from that, this also means that paying a higher down payment under the misconception that by turning negative CF in positive CF is a good thing.  It's an illusion.  All that higher DP did, was pay the negative CF upfront.  

To expand this, if you have a choice of taking (for example) $100k and using it all on one $100k property or taking that same $100k and splitting it as 20% DP's on 5 $100k properties, and the all 6 properties had the same CF if your paid all cash for them (that means all 6 were the same property financially), paying 20% on 5 properties will always work out much better as investments.  This holds true regardless of the interest rate.