Buy down points or not? An example

[Erik Kubec]

Hey folks,

Under contract on what will be our 4th property since 12/11--can't believe how busy we have been. We are 'buy and hold' investors, and our general rule of thumb has been to purchase properties (and choose financing options) that enable us to double PITI on a gross basis (if PITI = $650, then it needs to rent for $1300).

Obviously, one of the best ways to effect this ratio is to move from 20% down to 25% down. However, with this property, we are electing to go with 20% and have been quoted a rate of 4.5% (Property is under contract for $115,000).

So I am looking for some feedback, advice, and 'check my math' input on the following. Below is a table. The first three columns my lender provided me.
The next 5 are mine. The 'mo delta yr' refers to those two columns directly below and indicates the difference in monthly and yearly payments.

So I am missing something / doing something wrong?

It seems that the ROI on buying down the rate with points is really high--stupid high at the .125 and .25 rates.

I think I am leaning towards the 4% / 1 point $920 option as this would theoretically have me 'hit' the 'double PITI' goal since our property manager thinks the property can rent for $1200 / month.

Thanks for taking a look

Rate points cost PITI mo delta yr ROI ? Pay back (yrs)
4.500% 0.000% 0 624 0 0 N/A
4.375% 0.125% 115 618 6 72 62.61% 1.60
4.250% 0.250% $230 611 13 156 67.83% 1.47
4.125% 0.500% $460 604 20 240 52.17% 1.92
4.000% 1.000% $920 598 26 312 33.91% 2.95
3.875% 1.500% $1,380 591 33 396 28.70% 3.48
3.750% 1.875% $1,725 584 40 480 27.83% 3.59