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Holding Versus Selling

Holding Versus Selling. Decision rule: hold property until time period where marginal rate of return (MRR) ceases to be greater than the reinvestment rate of return (y): MRR ≥ y, where. MRR Is.

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Holding Versus Selling

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  1. Holding Versus Selling • Decision rule: hold property until time period where marginal rate of return (MRR) ceases to be greater than the reinvestment rate of return (y): MRR ≥ y, where

  2. MRR Is • The additional “yield” from extra year of operations + marginal capital gain from postponing sale of the property by 1 year: = {ATCFOP(t+1) / ATCFS(t)} + {ATCFS(t+1)-ATCFS(t) / ATCFS(t)}

  3. MRR Is • By aggregating both sources of return (operations + sales) we thus obtain: {ATCFOP(t+1)+tax credit + ATCFS(t+1) - ATCFS(t)} MRR = ATCFS(t)}

  4. Alternatives to Selling Property • Refinancing (a function of the reinvestment rate) • Renovation (affects the reinvestment rate and the MRR) • Differential tax treatment for new investor, or alternative property use.

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