Investment Holding Period
Investment holding period is the period over which an investment is held and spans from the time of acquisition to the time of sale. When analyzing a property it is necessary to assume a holding period. Although investment holding periods typically used in property are 5-10 years, shorter holding periods may assumed depending on the particular asset examined and the investor’s objectives and strategy.
The planned investment holding period of a property needs to be reassessed at least annually or whenever there are significant changes in the local property market within which the property competes. In particular, investors need to perform on a regular basis a hold/sell analysis of each of their property holdings in order to select the timing that will maximize the return on their investment.
A typical hold/sell analysis includes a meticulous analysis of the annual after-tax cash flows, as well as resale prices at the end of alternative holding periods of up to five years and calculation of the expected internal rate of return for each of the alternative holding periods. With these estimates at hand, as well as an assessment of the risk of cash flow forecasts and resale prices for the different holding periods, the investor can make better decisions in terms of the holding period that will maximize the risk-adjusted return of the investment