Investing in what specifically? There are a lot of options you could reinvest that money into, just really depends on your comfort level and what the goal of the investment is. You've got a paid off SFH bringing in cash flow, you could 1031 and upgrade to something else, refi and invest that into another property, or you could just invest the cash flow into your RE portfolio or dive into the multiple ways of investing outside of real estate.
I'm not a CPA, but at the end of the day, the income from your properties are realized when you receive them. There isn't a way to 'hide' them from the taxes by immediately putting them into another investment.
The only way I can imagine something would immediately go back into an investment (and maybe avoid taxes UP FRONT) would be if you funded part or all of your deal with your IRA or 401k, in which case you have to pay back whatever percentage of income is equivalent to your 'loan.' This doesn't apply to you though because your house is paid off (unless you did fund part of your deal with a retirement account.
@Josh Calcanis Thank you for responding, I meant investing back into real estate. I cannot seem to get my head wrapped around refinancing a paid off property when there is no loan. I recently converted this SF home into a LLC so not sure how hard or easy it will be to refinance.
@Anjali A. I don't think there are tax benefits to investing the net income. You can write off the depreciation but since it's fully paid off there isn't any mortgage interest. What you can do is look to take out a mortgage that will generate enough in the interest-portion of the mortgage (it will change over time) to offset that taxable income. That doesn't mean you need to take out an 75% LTV mortgage, it might be a lot less.
To put in another way, if you had an apartment building in SF that was generating $100K per year in net income you can't just decide to buy an SFR in Ohio for $100K to avoid paying any taxes.