Q: Last year, my wife and I sold some property and now have $100,000 to invest after having paid all taxes. We owe $100,000 on the house we live in, which is valued at $250,000, and we own a rental property worth $180,000, which has a $54,000 mortgage and produces a cash flow of $300 per month. What would be your advice on the best way to invest?
A: You haven't specified the rates on the two mortgages, but unless they are very attractive,It seems to me you would be best off using the entire $100,000 as prepayments on the principal of your two mortgages, beginning with the mortgage carrying the higher interest rate. While this would leave you with no yield from an outside investment, it would have the same effect, either by increasing your cash flow from the rental or freeing up cash you are paying on the mortgage on your residence.
So why not the alternative route, investing the funds and using the yield to pay the mortgage interest? Well, since you specify that you're not interested in investing for growth, it seems to me likely you will have to stretch to find a fixed-income fund whose yield will match the mortgage interest. By "stretch" I mean assume unwarranted risk.