Holding Versus Selling

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(t1) / ATCFS(t)
• ATCFS(t1)-ATCFS(t) / ATCFS(t)

3
MRR Is

• By aggregating both sources of return (operations
  sales) we thus obtain
• ATCFOP(t1)tax credit ATCFS(t1) -
  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.