Should I Sell My Condo?
When Diana Mulhall resigned from the consulting firm in 2018, she agreed to stay on for a couple months to train her replacement Debbie before she moved back to Chicago. Debbie happened to be looking for a place to rent nearby. Diana agreed to rent her condo to Debbie for $2500/month.
Debbie is now married and pregnant and found a bigger place as the condo is too small. So once again, Diana must decide what to; find a new tenant or sell.
2022 market and condo information has been updated in Exhibits 5-10 of provided Excel spreadsheet.
1. Pick 3 comparables from Exhibit 8 and using the Sales Comparison Approach, determine the value of Diana’s condo today. (15 points)
a. What was your rationale in choosing the comparables?
b. Plug this value into “Current value” on your pro-forma.
c. If Diana were to sell her condo today for this value, what would be the Return on Investment (ROI) her 2013 investment?
2. Create a ten-year pro forma for the property-level cash flows using the provided Excel pro-forma template. Key variables requiring assumptions are: (15 points)
a. market rent
b. annual growth in rent* (note restriction on Exhibit 10)
c. the property’s change in cap rate for holding period
d. the property’s vacancy rate
Once assumptions are placed in the yellow cells on the pro-forma, the spreadsheet will populate.
Discuss the rationale behind all assumptions and the implied property-level return (IRR) produced.
3. Consider the assumptions you made in Q2 as a “base case.” Pick 3 variables in your analysis and discuss how changing each would have a positive or negative impact on your IRR (3 points)
4. Given your analysis, should Diana rent or sell her condo? (7 points, approx. 175 words) Your answer may incorporate;
a. Is the IRR generated in Q2 sufficient?
b. Consider the highest and best use theory; is the condo worth more as a rental than the sale price?
c. any non-financial factors (ie, demographics, foreign ownership, 3rd party information, etc.) you feel relevant.
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