Land Note Investing Interview: How to Sell Your Seller-Financed Notes for Cash at Closing

Interview with Seth Williams, REtipster Podcast | May 2023 | 15 min read

I recently had the opportunity to sit down with Seth Williams from the REtipster podcast to discuss land note investing, seller financing, and how land investors can offer terms to sell properties faster while still getting cash at closing.

If you've ever wondered:

• How to offer seller financing without holding the note long-term

• What makes a land note sellable vs. problematic

• Why loan servicing matters more than you think

• The difference between land contracts and notes/mortgages

• How to structure seller financing the right way

...then this interview covers all of that and more.

Watch the full interview below, then read the key takeaways:

My Journey from Frustrated Landlord to Note Investor

I spent 23 years as a high school teacher while building a rental property portfolio on the side. Starting in 2001, I purchased and rehabbed single-family homes with dreams of achieving financial freedom through real estate.

After 13 years of dealing with the constant stresses of landlording—interrupted holidays, tenant headaches, maintenance emergencies—I realized I wasn't going to achieve my goals through rental properties.

In 2016, I discovered notes.

Notes offered what rentals never could: truly passive real estate income. No 3 AM phone calls about broken water heaters. No evictions. No property management headaches.

Since 2016, I've purchased over 500 notes, including:

• Residential performing notes

• Non-performing notes

• Active bankruptcy notes

• Vacant land notes

But here's what changed everything: I discovered the land space.

Land investors are creating some of the best seller-financed notes in the market. The problem? Most land investors don't want to hold notes long-term. They're in the business of flipping land, not collecting monthly payments for 5-10 years.

That's where I come in.

The Land Note Opportunity (And Why Most Investors Miss It)

Here's the challenge facing land investors:

You can sell properties much faster and for significantly more money if you offer seller financing. Studies show properties with seller financing:

• Sell 30-50% faster

• Command 20-40% higher prices

• Attract 10X more buyers

But there's a problem:

The land business is cash-intensive. You need capital to:

• Buy your next property

• Market new inventory

• Cover business expenses

• Scale operations

Holding a $400/month note for 5-10 years doesn't help you grow your business today.

The solution:

Sell your seller-financed note at closing for immediate cash—typically 80% of the purchase price. You get most of your money upfront, the buyer gets favorable financing, and a note investor (like me) gets a quality performing asset.

What Makes a Note Sellable vs. Problematic?

When I first started looking at land notes, I encountered serious problems:

Common Issues That Make Notes Unsellable:

1. Self-Serviced Loans

Many investors collect payments themselves rather than using a professional loan servicer. Problems:

• No third-party documentation

• Disputes over payment history

• Missing interest statements

• No paper trail if borrower challenges balance

Solution: Use a professional loan servicer from day one (cost: $15-30/month).

2. Land Contracts

Land contracts create multiple problems:

• Seller retains legal title (liability exposure)

• Harder to sell (fewer buyers want them)

• Complicated foreclosure procedures

• State-specific regulations

Solution: Use promissory note + deed of trust (or mortgage depending on state).

3. Poor Documentation

Missing credit reports, no down payment verification, incomplete paperwork, unrecorded liens.

Solution: Follow proper loan origination procedures with attorney guidance.

4. Weak Underwriting

No credit check, zero down payment, no payment history, risky borrowers.

Solution: Require minimum credit score and down payment based on risk.

My Four Pillars of Note Underwriting

When evaluating any land note purchase, I look at four critical factors:

Pillar 1: The Property

Questions I ask:

• If the borrower defaults, do I want this property back?

• Can I resell it easily?

• Is it in a state where I operate?

• Does it have legal access?

• What's the topography and usability?

• Are there water or wetland issues?

My rule: I look at every deal through the lens of worst-case scenario. I only buy notes secured by properties I'd be comfortable repossessing and reselling.

Pillar 2: Investment-to-Value (LTV)

My maximum: 70% LTV

Formula: What I'm paying for the note ÷ Property value = Must be ≤ 70%

Example:

• Property value: $50,000

• Note balance: $40,000

• I purchase note for: $32,000

• My LTV: $32,000 ÷ $50,000 = 64% ✓

This protects me even if the borrower defaults and property values decline.

Pillar 3: The Borrower

What I evaluate:

Credit Score:

• Minimum 660 for 20% down

• 25% down for 640-659 credit

• 30% down for 620-639 credit

• 50% down for below 620

Down Payment:

• Absolute minimum: 20%

• Preferred: 25-30%

• High risk borrowers: 50%

Credit Report Review: I look beyond the score at what's actually on the report. Medical debt is common and doesn't always indicate payment problems.

Property Use:

• Recreational/investment land: Less documentation required

• Primary residence: Full income verification recommended

Red flags I avoid:

• Zero down, no credit check loans (default rate is astronomical)

• Self-employed borrowers with no documentation

• Properties intended as primary residence without income verification

Pillar 4: Loan Terms and Yield

What I analyze:

Interest Rate:

• Target: 9-12% (sweet spot for land notes)

• Too low (under 8%): Harder to resell, requires bigger discount

• Higher rates (12-15%): More attractive to note buyers

Term Length:

• Preferred: 5-10 years

• Avoid: 30-year terms (harder to sell)

• Shorter is better for resale value

Payment Structure:

• Must be amortizing (not interest-only)

• Monthly payments (not quarterly or annual)

My Target Yield:

• 14-20% annual return depending on risk

The Two Percent Rule: I like to see monthly payment = 2% of my purchase price. This provides strong cash flow while the note performs.

Why Loan Servicing Matters (And Which Companies I Recommend)

Using a professional loan servicer is the single best $20/month you'll spend.

What Servicers Do:

• Collect monthly payments

• Track payment history with professional software

• Send tax statements (1098/1099)

• Interface with borrower (you don't have to)

• Provide online portal for account access

• Licensed in states where they operate

• Handle late payment notices

• Maintain legal documentation

  
  

Why this matters for selling your note:

When I buy a note that's professionally serviced, I know:

• Every payment is documented

• Balance is accurate

• Payment history is clean

• Transfer is simple

Self-serviced notes require significantly more due diligence and may be discounted 10-20% or declined entirely.

Land Contracts vs. Notes/Mortgages: The Critical Difference

Land Contract Structure:

• Seller retains legal title

• Buyer gets equitable interest

• Title transfers at final payment

Note + Deed of Trust Structure:

• Buyer receives title immediately

• Seller holds lien (security interest)

• Standard, well-understood instrument

Why I Prefer Notes Over Land Contracts:

1. No Liability Exposure

With land contract, you're still on title. That means:

• You're liable if someone gets injured

• City fines come to you

• Environmental issues are your problem

• Lawsuits name you as owner

With note/deed of trust:

• Buyer owns property

• They're liable

• You just hold lien

2. Easier to Sell

Land contracts are harder to sell because:

• Complex title structure confuses buyers

• Transfer taxes may apply

• Additional recording required

• Fewer note buyers want them

Result: Land contracts sell for 10-20% less than equivalent notes.

3. Clear Foreclosure Process

With deed of trust (non-judicial state):

• 3-6 month process

• Well-established procedures

• Predictable costs ($2,000-4,000)

With land contracts:

• Process varies wildly by state

• May require full judicial foreclosure anyway

• Less predictable timeline and cost

• More attorney involvement

4. Clean Title

Notes/deeds of trust:

• Standard chain of title

• Easy to record, assign, release

• Title companies understand them

Land contracts:

• Memorandum creates title clouds

• Removal requires legal action

• Complicates resale

My recommendation: Use promissory note + deed of trust (in non-judicial states) or promissory note + mortgage (in judicial states). Avoid land contracts unless you have a specific state-law reason to use them.

State Considerations: Where Foreclosure is Easy (And Where It's Not)

Easiest States (Non-Judicial Deed of Trust):

Texas: 3-4 months, very straightforward Arizona: 3-4 months Colorado: 4-5 months Washington: 4-5 months Tennessee: 3-4 months Georgia: 4-5 months Mississippi: 3-4 months Alabama: 3-4 months Missouri: 4-5 months

Harder States (Judicial Foreclosure Required):

Florida: 6-18 months Illinois: 8-18 months New York: 12-24 months Pennsylvania: 8-15 months

States I Don't Operate In:

• New York: Complex lending laws

• New Jersey: Small state, complex regulations

• Pennsylvania: Anti-lender tendencies, difficult licensing

• Georgia: Difficult licensing for note buyers

My Note Buying Program: How It Works

I created this program specifically for land investors who want to:

• Offer seller financing (sell faster, higher prices)

• Get cash at closing (80% of purchase price)

• Avoid holding notes long-term

• Skip the complexity of loan origination

Program Overview:

What I Purchase:

• Seller-financed land notes

• Purchase price: $25,000-$150,000

• At closing (simultaneous close)

What You Receive:

• 80% of purchase price in cash at closing

• I handle all paperwork oversight

• I handle all process management

• I conduct credit checks

• I review property

What You Do:

• Market property with seller financing terms

• Find qualified buyer

• Close the deal

Requirements:

Property:

• Vacant land in states where I operate

• Clear title

• Legal access

• Good marketability

Borrower:

• Minimum credit score based on down payment

• Down payment: 20-50% depending on credit

• Property used for investment/recreation

Loan Terms:

• Interest rate: 9-12%

• Term: 5-10 years preferred

• Monthly amortizing payments

• Professional loan servicing required

The Process:

Step 1: Initial Property Review You send me property details. I confirm it meets my criteria.

Step 2: Marketing With Terms You market with seller financing. I provide recommended terms.

Step 3: Buyer Pre-Approval Potential buyer applies. I run credit and approve/decline.

Step 4: Closing Coordination I coordinate with title company for simultaneous close.

Step 5: Funding at Closing You receive 80% cash. I receive note and lien. Buyer receives deed.

Step 6: Ongoing Servicing Professional servicer handles all payments. You're done.

Real Examples: Default Scenarios and How I Handle Them

Q: How often do borrowers default?

A: In my experience with properly underwritten land notes (660+ credit score, 20%+ down payment): Under 10% default rate. More likely 5%.

Q: What happens if they default?

Process:

1. Day 90: Demand letter sent (cure default within 30 days)

2. Day 120: Notice of default recorded

3. Day 150: Notice of sale recorded (sets auction date)

4. Auction Date: Public foreclosure sale

Most outcomes:

• Borrower cures default (catches up payments)

• Borrower deeds property back (deed in lieu)

• Property is foreclosed and resold

Q: What about deficiency judgments?

With notes/mortgages (not land contracts), I can pursue deficiency judgment against borrower personally if foreclosure doesn't cover full amount owed.

This is a powerful motivator for borrowers to cooperate.

Tax Strategy: The Solo 401(k) Advantage

One topic Seth and I discussed that's crucial for land investors: tax mitigation.

The Problem:

Land investors pay taxes year after year on the same money:

• Profit from land flip: Taxed

• Use profit for next flip: Taxed again on gains

• Repeat forever

The Solution: Self-Directed Solo 401(k)

What it is:

• Retirement account for self-employed individuals

• Can be structured as Roth (pay taxes now, never again)

• Self-directed (you choose investments)

• Checkbook control (no custodian approval needed)

Contribution Limits (2023):

• $66,000 per person

• $132,000 for married couple

How I use it:

1. Contribute after-tax dollars to Roth Solo 401(k)

2. Use funds to purchase land notes

3. All interest income grows tax-free

4. Never pay taxes on gains again

Requirements:

• Must be self-employed (full or part-time)

• Cannot have full-time employees (part-time and contractors are fine)

• Investments must be passive (can't flip land in IRA)

Important: This works for note investing because notes are passive investments, not active business operations. Consult with tax advisor before implementing.

Recommended reading: The Power of Zero by David McKnight

Key Takeaways from This Interview

1. Seller financing is powerful for land investors:

• Sell 30-50% faster

• Command 20-40% higher prices

• Attract 10X more buyers

2. You don't have to hold the note:

• Sell at closing for 80% cash

• Get most of your money immediately

• Keep capital working in your business

3. Do it right from day one:

• Use professional loan servicer ($20/month)

• Use note + deed of trust (NOT land contract)

• Require credit check and down payment

• Work with foreclosure attorney for documents

4. Understand what makes notes valuable:

• Good property (you'd want it back)

• Strong borrower (660+ credit, 20%+ down)

• Good terms (9-12% interest, 5-10 years)

• Low LTV (70% or less)

• Professional servicing

5. State matters:

• Non-judicial states: Faster, easier foreclosure

• Judicial states: Longer, more expensive

• Some states have complex licensing

6. Tax strategy matters:

• Solo 401(k) can shelter significant income

• Notes are ideal passive investments for retirement accounts

• Consult tax professional for your situation

Tools and Resources Mentioned

Software:

• T1 Value (financial calculator): $60/year

• PipeDrive (note tracking)

• QuickBooks (accounting)

Legal Resources:

• Legal League 100 (creditors rights attorneys by state)

• State-specific foreclosure attorneys

Books:

• Lienlord: An Introduction to the Power of Note Investing (by Eric Scharaga)

• The Power of Zero by David McKnight

Questions About Selling Your Land Notes?

Whether you're:

• Currently offering seller financing and want to sell notes

• Considering seller financing for the first time

• Holding existing notes you'd like to sell

• Just curious about how the process works

I'm happy to answer questions and discuss whether your situation is a good fit.

My note buying program offers:

• 80% of purchase price at closing

• No complicated negotiations

• Professional oversight of entire process

• Fast, transparent transactions

• Repeat business relationships

Or if you just want to learn more about structuring seller financing correctly, I can help with that too.

Contact me:

Call/Text: 302-526-0200Email: eric@damencapital.com