My two partners and I are making about $1500 per month in Cash flow only deducting the mortgage. If we put 10% away for maintenance, repairs and vacancy, we're left with a little over $1200 per month. What to do with that extra money is a topic of conversation. We can:

1) Take the cash flow and split all of it 3 ways to help with our personal finances

2) Take no money out and aggressively pay down the mortgage over a few years (we owe ~$82K) to get it off our records, own the place free and clear and eliminate mortgage payment (P&I ~$412/mo). Re-invest in RE with the equity

3) Take no money out and accumulate cash reserves to re-invest in building #2

4) A combination of 1 & 2 or 1 & 3. 

My thinking is there's no tax benefit to paying down the mortgage principal and I could use the extra money ($400/mo) now to pay bills. But don't want to be too short-sighted.

What do we do?

Don't forget to account for insurance, property tax, vacancy, and cap-ex on the big ticket items which will eventually need to be replaced (roof, water heater, HVAC, etc). 

Assuming you and your partners have some time to go before retirement, I think #3 is the clear answer.  Reinvesting your returns is a hugely important if you want to increase your cash flow over time.  You should be plotting your course to position yourselves for making the next investment.

Sounds like you're getting a great return.  Well done.  I would hold off on pulling out the cash flow as long as you can.  Put it back into the business and let it grow.  Option 3 would be faster.  But option 2 would be safer.  I just depends on how much risk you can tolerate. 

Your big ticket items will bite you if you do that.  Houses are similar to heavy equipment I used to own.  New tracks on a dozer/excavator are about $24k.  It happens about every 2 1/2 years, whether you budgeted for it or not.

How long have you been having this great cash flow? If it's only been a few months wait and see what your true cash flow is over a longer period of time. You will have good months and bad months and it seems to me you are on a good run. Which only means one thing...something is about to happen! :). Repairs, vacancy, disaster, ect. In my 9 months of investing I have already learned this lesson. It's important to have cash reserves for these unexpected maintenance costs that pop up every once in while. For me it was a flooded basement thanks to the unexpected heavy rains in Indy. If all continues to go well and you are able to build a reserve. Then I would start reinvesting the profit. But make sure you have those reserves first. You just never know when a big ticket repair is going to come crashing down on you.

@Chidi Osuji It seems like a tough problem...all this cash flow!

This is a personal decision - or three persons decision as is true in your case. I agree with @Account Closed however and if this cash flow is a recent 'problem' I would wait a while to let the dust settle. Time (and maintenance bills) are the true measure of cash flow.

The 10% for vacancies, repairs, etc is good but also need to handle cap ex. It will happen plus property taxes. I did not see that listed. As for strategy, I would build your reserve then option 3. It helps to diversify to reduce risk. Good luck

I would increase my cash reserves to more than you think you'll need then reinvest it via option #3. Since you are talking about paying bills with $400 it gives me the perception you don't have enough reserves in both business and personal. 

buy out your partners!  become the man!