25% Higher Interest Versus 20% and Lower Interest

[Brian B.]

Hi All,

I am about to pull the trigger on my first 20 unit property. The expenses + T&I equate to 40% of the monthly total rent. My CoC return would be 9.2% which I think seems decent in today's world.

Here's the question:

Option 1: I am debating doing 20% down and 4.5% on the Freddie Mac Small Balance Loan and paying more for the property (1.25 M).

Option 2: Offer less (1.1M) with 25% down and the higher interest rate at 5.5%. 

The CoC return is roughly the same on both deals.

I know this seems counterintuitive, but wouldn't it make sense for me to pay more for the property and use the leverage from the bank and pay more for the property? Or is this logic downright stupid? 

Thank you all in advance!