Disposition and Renovation of Income Properties The primary purpose of this chapter is to answer the following two questions: (1) When should a property be sold? (2) Should a property be renovated? We will see that once a property has been purchased, the return associated with keeping the property might be quite different than the return originally estimated. The concept of a marginal rate of return helps evaluate whether a property should be sold or held for an additional period. The marginal rate of return considers what the investor could get in the future by keeping the property versus what he could get today by selling the property. To determine whether a property should be renovated, we consider the incremental benefit associated with renovating the property versus not renovating the property. This approach is appropriate when the investor already owns the property and the question is whether an additional investment made to renovate the property is justified. If the investor does not already own the property, we must take a different approach. In this case the investor will want to know the total rate of return associated with both purchasing and renovating the property. The investor will also want to know the return for purchasing the property but not renovating it, since it still might make sense to purchase the property but not renovate it. From the above summary, it should be obvious that the approach we take when analyzing an investment depends on the particular question that we are trying to answer. Poor investment decisions are often made because the analyst did not answer the right question.
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