Advice on a hard decision (should I sell my STR in the Dominican Republic)

[Dewey Paxon]

I recently built a large STR in the Dominican Republic. I have a few partners, but went over budget and personally funded the remaining construction costs. The STR has been successful, but I do not see me getting the additional funded construction costs back anytime soon. Because of that, my partners and I have discussed selling. Construction cost settled at $950k. We are closing out the first year of rental history and expect to gross close to $240k this year. A recent appraisal would have it listed around $1.75 m. Curious to hear other investors thoughts on whether I should cash out and sell or keep raking in the passive income.

[Mike Lambert]

@Dewey Paxon

You're welcome. You're mixing up ROI and ROE and it's the ROE that counts (David Greene has explained that well in several podcast episodes)!. The $950k is totally irrelevant if the property is worth $1.75 million. If you sell for $1.75 million, your buyer's ROI (and ROE) is going to be $220k / $1.75 million = 12.5%, not 23%! And that assumes the buyer can sell the same services as you do. Also, you can't take short-term rental income for granted as if it was long-term rental income. Aside from the risks I mentioned, there is the increasing competition and ST rental income is never truly turnkey or passive income, even if you use a manager.

Even for you, if you sell for $1.75 million, all you'd need is to reinvest the proceeds of the sale at a 12.5% to make $220k so the relevant return is 12.5%, not 23%. That's a trap too many investors fall into!

So I would be selling without hesitation because I can find much better uses for $1.75 million in terms of return while taking less risks. If you don't have such opportunities, it's a different story. So what I would do might not be that relevant ton you. Hopefully I gave you some food for thought.