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Published byBeverly Bell Modified over 9 years ago
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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
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MRR Is The additional “yield” from extra year of operations + marginal capital gain from postponing sale of the property by 1 year: = {ATCF OP (t+1) / ATCF S (t)} + {ATCF S (t+1)-ATCF S (t) / ATCF S (t)}
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MRR Is By aggregating both sources of return (operations + sales) we thus obtain: {ATCF OP (t+1)+tax credit + ATCF S (t+1) - ATCF S (t)} MRR = ATCF S (t)}
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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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