The real estate investment cycle involves acquisition, holding, and disposition.

Immediately upon acquisition of a real estate investment property, the real estate investor should have a holding period management strategy in place. How long does the investor plan to hold the property and what will the investor look for to trigger a disposition? The disposition should also be given careful consideration. A rational real estate investor must not only decide the timing of the disposition but also include in that decision how the net proceeds will be reinvested.

Maximizing an investor’s wealth position may require a decision to continue to operate the property rather than dispose of it. Retention of the property may be the best use of resources in terms of risk and rates of return. In other words, does the investor want to retain or dispose of the property?

The reversion decision, then, typically involves a decision to retain the investment or dispose of it. If disposition is warranted, then it may be marketed in:

1. an outright sale
2. an exchange
3. a sale and leaseback arrangement

The reversion decision is important because it’s one of the two major sources of cash flow received from any rental property investment. During the holding period, an investment generates annual cash flows (before and after tax), and upon termination, it generates a final cash flow resulting from settling accounts at the sale.

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