What to do with proceeds from sale?

[Eric O.]

We sold our former primary residence with the proceeds being tax free. I want to make sure I’m making the right investment with the proceeds. We own three condo rentals which are all financed on 10-yr loans. Very small cash flow per month on them when financed. Goal was to start living on the rental income when the mortgages were paid off. I am 40 years old.

With the proceeds I was going to pay off all three mortgages on the condos. The annual net return would be 15% a year. That’s the best decision I can do with the money, correct? The cap rates are at 6%. I wanted to bounce the idea off of someone else. 

[Greg Scott]

Paid in full rent properties have horrible returns, higher taxes, and higher liability exposure, without exception.

Why would you not buy a lot more properties and use leverage at historically low rates to boost your cash flow tremendously?   Three condos aren't going to have enough depreciation to offset your cash flow, so you have also put yourself in a taxable situation. Finally, paid-in-full rent properties are lawsuit targets.  Lawyers are attracted to them like moths to a flame, but they don't care as much about leveraged ones.

I'm not a fan of condos either, but if you wanted to keep them I'd put 30 year fixed rate mortgages on them and take the proceeds to buy SF rent properties.