Sell, Cash-Out Refinance, or Keep? How to build wealth?

[Marek Kucharski]

So, this is a question about what is the best way in which to build wealth with real estate in our situation.

My husband and I have three rental homes. We bought them with 15-year mortgages.

They will be paid off in 9, 10, and 11 years, respectively.

There are three options that we are considering after that.

1. Sell the homes at the moment that they are paid off. Invest the money in the market (bonds, treasuries, dividend aristocrats). Buy another 3 homes, again with 15 year mortgages (they would be paid off exactly the year in which we retire). This would be good from a tax point of view as we would not have depreciated their total values, we also spent some time living in each home, and, because of our income, we were unable to deduct most of the losses each year, so they rolled over. The tax implications would be pretty favorable here.
2. Keep the homes. Cash out refinance. Use some of the money for down payments for three more homes, invest the rest (bonds, treasuries, dividend aristocrats). Now this is my husband's idea, but I am skeptical. Namely, if we were to keep these homes until we retire, we would have this wealth, but 1- we would have to maintain them, deal with the tenants, etc. in addition to the three "new" rental homes, 2-the tax implications would be much worse upon sale- they would have depreciated completely and- this is my main question--- CAN YOU DEDUCT CASH OUT REFINANCED INTEREST for rental properties? My gut tells me- no. Also, I really am not sure that once they are paid off that they are worth the hassle. They bring in about 4% rate of return annually, after taxes, HOA fees, etc. if they are systematically rented. I could get that in the market and it seems that if we cannot deduct the cash out refinance- we would be losing this money to interest payments. Though of course, they also grow in worth, but you also have to pay real estate agents annual fees to look for tenants, sometimes things break, sometimes there is a period where they are empty, etc.
3. Keep the homes. Buy three additional rental homes. Again, the initial homes will depreciate completely, and the same holds true, as above for rate of return. It makes so much sense to have these rentals when they are leveraged- I have tenants paying off my mortgage, but I really feel that the advantage goes away when they are paid off- am I wrong?

Thank you very much for reading this lengthy question. Which option do you think makes the most financial sense? And why?

((FYI- We are maximizing Roth accounts, putting money in a 403B (not maxed because we have two little ones in daycare), and have a nice pension coming our way)- so this is really meant to be about 1/3+ of our retirement plan. We are hoping to build wealth, what is the best way to do it?) )