I'm curious about opinions on what to do with 500K? We could pay off the mortgage on our rental property and have a bit left over. If we did, the rental property would start generating income (big part of our retirement plan). But the interest rate on the mortgage is really low (3.5%) so we are wondering if we should invest it instead. The appeal of paying off the mortgage is that we would end up with a passive income stream that would almost be enough to cover our core living expenses thus bringing us closer to our goal of early retirement.
Thoughts?
First, you've been given some good advice above. This decision will be heavily dependent on your personal risk tolerance, your goals, FI plans, etc.
It would be hard to give good advice without knowing more of your personal situation. Please share some of those details if you'd like more accurate responses.
I would suggest that you keep it in the savings account for at least a few months before making any decisions. Something like "I'm not touching the money for 60 days until I give every angle of this decision a good scrub and consideration."
DON'T BE IN A HURRY AND MAKE A POOR DECISION!You've also received some poor advice. Unless the rental property is throwing off a loss each year and your income prevents you from taking passive activity losses, you are getting an interest expense deduction on Sch E of your tax return. It has nothing to do with itemized or standard deductions. So, you need to consider your marginal tax bracket X the interest expense taken on Sch E to figure your effective mortgage rate (assuming you are able to take the Sch E loss).
For the most important point which I bolded above in your quote, it sounds like this "rental property" is a poor investment.
At a low fixed rate of only 3.5%, if this property is not cash flow positive you paid too much for it. You could be
investing betting on speculation, but that is a fool's game IMHO. If the property won't cash flow, consider selling it altogether rather than sinking a few hundred thousand to pay off the mortgage.
Again, please provide more info on how this decision impacts your overall financial picture to get better advice.