# Trying to compare two investment scenarios

I have an apartment that I have been renting, but due to some recent events, I'm considering selling. I'm trying to make a numbers based decision, so I'm going to try to compare two distinct scenarios:

1. Keep property
2. Sell and invest in index funds that track the SP 500

To make this comparison, I'll have to consider the cost of ownership and make some assumptions are projected returns. Of course, before making any final decisions, I'm likely going to consult a financial professional. However, I'd like to wrap my arms around the options to see if either option is an obvious winner. I don't know what I don't know. I'm certainly not a financial adviser by any means. I'd appreciate it if anyone can poke holes in my analysis here.

Option 1 (Keep property) Monthly expenses (mortgage + interest + insurance + upkeep + other fees): E Rental income: I Inflation rate: i Years remaining on mtg: N Present value option 1: PV1 Future Value option 1: FV1 appreciation rate: a

FV1 = appreciation of the property + income - expenses FV1 = FVa + FVi + FVe FVa = PV(1 + (a-i))^N FVi = I(1+i)^N FVe = E(1+i)^N FV1 = PV1(1 + (a-i))^N + (I - E)(1+i)^N

Option 2 (Sell property and invest in market) Projected sale price: S Current balance: B Commissions rate: c Years remaining on mtg: N capital gains tax rate: g capital gain deductions: D capital gain: G capital gain tax: T avg market return: m avg dividend return: d avg inflation: i present value option 2: PV2 future value option 2: FV2

If S greater than B: Capital Gains If S Less than B, ignore capital gains tax

G = (S - B)*(1 - c) T = (G - D)*g PV = G - T FV2 = PV2(1+(m+d-i))^N

Results If FV2 greater than FV1, sell and invest in market Else, hold property

Thoughts? How can I make this analysis better?

• I think it would be simpler for you to do this in Excel, tracking year over year, than to try and develop a single-line formula. Is this a homework question? If so, what does your textbook suggest? – Grade 'Eh' Bacon Sep 19 '18 at 13:30
• It's a real life question, not homework. I'm using Excel to track this year over year, however, I want to understand it from a fundamental level to make sure the Excel numbers make sense. Garbage in = Garbage out. – wildjohnny Sep 21 '18 at 2:05