Expand Or Payoff

[Paul Novak]

I am debating my next move with my rental business.  I am not that big.  I have 3 total properties and 5 doors, 2 multifamily properties and a single family.  My goal is to retire off of my monthly rental profits and my target number is $11K per month.  To hit that $11K per month I plan on having all my properties paid off.  I would rather have 10 paid off properties that make $11K per month then 30 properties with debt on them.  My current portfolio generates $2,790 per month with debt and would generate $4,900 per month if paid off in full.  This leaves me with needing to pay my current properties off but also needing to purchase more properties to achieve my goal.  Now for my decision:

I won't purchase a rental unless I can cashflow at least $500 per month.  With interest rates, home prices, and rent prices in my market to hit that goal of $500 per month I am looking at purchasing a house around $200K, putting down $100K, and renting it out for around $1,500 per month.  My wife and both make a high income for our area and I feel we could save about $100K per year to keep buying.  If we did a deal using the numbers provided above we could cashflow around that $500 per month.  My other option is to pay off the balance on one of our mortgages and cashflow more.  For example the last rental property we purchased we owe on it about $86K and if paid off would cashflow an additional $600 per month.

Because of our household income I am worried that paying off properties would bring us into tax brackets.  Trying to keep the logic simple if every house you own you can deduct 3 main categories on your taxes (property taxes, depreciation, mortgage interest) if I paid off a house I would make more with only two primary deductions.  If I purchased another house I would have 6 main deductions because each of the three would double up with two houses.  Honestly I don't see the market lowering home prices anytime soon or rates dropping any time soon.  I also am not a fan of timing markets.  I am a fan of saving up and investing when you have the capital to do so, sometimes your timing is good, sometimes it's not, but over the long term you will win.  Does anyone have any advice on how they would proceed?