Just want opinions how to invest my money

[Ana Bejar]

I have 7 rental properties. Interest rates range from 4.12% to 6.5%. Net cash flow is currently $50k/yr but pre tax. I haven’t paid taxes since I bought them due to deductions such as depreciation and interest payments. I owe about $950k left. They are located in California and Nevada. How would some of you do this?

Scenario 1: Pay off all mortgages and my net pre tax cash flow is about $120k/yr. I have no more headaches, there is an umbrella policy for the properties, and I can buy more properties with the cash flow without anymore personal money. Example, I can buy a property that is $500k and pay it off in less than 5yrs and snowball more or leverage 5 other properties elsewhere and snowball. I can pay down faster if I included personal income but at this point I don’t need to.

Scenario 2: Pay off properties with the 6.5% mortgage and 4.25% mortgage. Why? The money needed for these properties would regularly require a greater than 8% return in other investments to receive the same cash flow if paid off. I would be getting about $90k/yr. The other rentals I have, I don’t need to pay off because other investments can currently generate the same amount of cashflow.

Scenario 3: Leave as is, put money in other investments, and buy more property when deals come along. Problem is that I have to use my personal income plus rentals and that would probably take a few years longer to acquire properties in the desired areas. I am almost 55 and still have kids waiting to go to college so saving will be a little more difficult. I am also less aggressive at acquiring properties since covid, I like to work less and hang out with the family more.

I have a plan, but I would like others to chime in on their thoughts. Maybe there will be new ideas I haven’t thought about.

[Basit Siddiqi]

Scenario 1 = It looks like you have $950,000 cash to pay off the mortgage balance off.
You are getting $70,000 additional cash-flow
$70,000 / $950,000 = 7.3% which is not bad considering this is just cash-flow and you likely get an additional 4% appreciation bringing your total return to around 11%

The thing to consider is that you would then lose the mortgage interest deduction.
Without that deduction, it may put you into taxable income territory.

You may want to consider seller financing some of the properties and see if you can get 8% to 10% interest.
it would guarantee you a return and still get you nice interest over a period of time.

As I get older, I want my investments to be more 'simpler'