Hold versus sell
Compare today’s net sale proceeds with discounted holding cash flows.
Your scenario
Pretax comparison. Annual cash is after property costs, capital needs and debt service. Enter the expected exit debt balance separately. Both sales use the same cost percentage; no assumed appreciation or tax deferral.
How the model works
Holding value = present value of annual net cash flows plus net future sale proceeds. Compare with net sale proceeds available today.
Worked illustration
Selling a $3 million property at 5% costs with $1.8 million debt yields $1.05 million before tax. Holding must compensate the owner for postponing access to that equity.
Treat existing equity as committed capital
The comparison starts with net cash an owner could release by selling today after the entered costs and debt. Holding gives up immediate access to that cash. It is therefore useful to evaluate the forward decision even when the original acquisition occurred years ago. Historical cost and unrealized gain do not alone establish which option is better today.
The holding value discounts flat annual cash and net terminal proceeds at the entered required return. Annual cash should already deduct debt service and the capital expenditure assumed for those years. The exit-debt field is the remaining payoff at sale, not the sum of all payments during the hold. Deducting both scheduled principal payments and the original loan again at exit would overstate the burden.
Compare alternatives using compatible assumptions
Use supportable future income, capital and buyer pricing to build the future gross sale price. A larger nominal sale does not necessarily compensate for additional equity, downtime and years of risk. This simple model does not contain a field for a new capital call: evaluate a major renovation or refinance contribution in a full cash-flow model rather than concealing it inside an annual average.
The displayed advantage is pretax and depends on the chosen required return. Test lower annual cash, a weaker exit and a longer execution period. Consult qualified advisers for tax and transaction-specific exchange matters; a potential 1031 exchange is not assumed to remove tax or eliminate reinvestment obligations. The final choice should also reflect liquidity, concentration, personal objectives and the ability to execute the next business plan.
What to check before relying on the result
Pretax model, flat annual operating cash, and identical sale-cost percentages. No assumed 1031 treatment or automatic future appreciation.
Model an adverse scenario as well as the expected outcome. Change one assumption at a time to identify what drives the result, then test combinations that could occur together. A property can meet a modeled financial threshold and still fail diligence, legal requirements or lender approval.
Keep the cash-flow definitions consistent
Distinguish recurring property operations from tenant improvements, leasing commissions, capital expenditure, financing costs and entity-level distributions. Verify whether reserves are expenses, funding requirements or cash movements in the documents you are analyzing. A cash-flow convention must remain consistent across the model and the comparison.
Research context
Consult the source material for this topic. The model is an original educational calculation, not a reproduction of a lender’s underwriting system. The initial numbers are hypothetical inputs rather than current market terms. No scenario inputs are transmitted or saved by this calculator.