Should You Sell Your Land Note? Complete Guide to Cashing Out Seller Financing

By Eric Scharaga | Updated November 2024 | 12 min read

You sold a $100,000 land parcel with seller financing. Great move—it helped you sell faster and at a higher price. Now you're collecting $850/month for the next 10 years.

But here's the question that keeps nagging you: Is this the best use of your capital?

While that $850 checks lands in your account each month, you watch other land investors flip 3-4 properties per year, each netting $30,000-50,000 in profit. They're scaling. You're stuck waiting.

Your $100,000 is locked up, earning a return, but is it your highest and best return?

After buying over 150 land notes and helping hundreds of land investors exit their seller financing, I'm going to walk you through the complete decision framework: when to hold your note, when to sell it, how to calculate the true value, and how to maximize your outcome.

Understanding Land Notes: What You're Really Holding

First, let's clarify what you have:

A land note (or land contract) is:

• A debt instrument where the buyer owes you money

• Secured by the property you sold

• Pays you monthly principal and interest

• Typically 5-20 year term

• You hold a lien on the property until paid off

What it represents:

• Your equity in the property you sold

• A long-term investment returning X% annually

• Risk exposure to buyer's ability to pay

• Illiquid capital (not easily accessible)

Example:

• You sold land for $100,000

• Buyer put $10,000 down

• You financed $90,000 at 10% for 10 years

• Monthly payment: $1,187

• Total return over 10 years: $142,440

• Your profit: $52,440 in interest (plus your original equity)

Sounds good, right? But there's more to the story.

The Hidden Costs of Holding a Land Note

Most land investors only calculate the interest income. They miss these hidden costs:

Hidden Cost #1: Opportunity Cost

What is opportunity cost? The return you're NOT earning by having capital tied up in a note instead of deployed in your main business.

Example:

• Your note earns 10% annually ($9,000/year on $90K note)

• You typically make 40% annual returns flipping land

• Opportunity cost: $27,000/year you're NOT making

Over 10 years, that's $270,000 in lost profits.

Hidden Cost #2: Default Risk

Statistics on land contract defaults:

• 15-25% of seller-financed land deals default

• Average time to default: 18-36 months

• Average recovery through foreclosure: 60-80% of note value

• Time to foreclose and resell: 12-24 months

Your risk:

• Buyer stops paying

• You foreclose (legal costs: $3,000-8,000)

• Property sits for 12 months

• You resell at lower price

• Total loss: Potentially $20,000-40,000+

Hidden Cost #3: Management and Mental Bandwidth

Time spent managing a note:

• Tracking payments monthly

• Following up on late payments

• Property tax monitoring

• Insurance verification

• Handling buyer requests

• Annual tax reporting

• Servicing coordination

Estimated annual time: 10-20 hours Value of your time: $100-200/hour Hidden cost: $1,000-4,000/year

Hidden Cost #4: Market Risk

What happens if:

• Land values decline 20% in your area?

• Buyer defaults and you're stuck with property worth less than the note balance?

• Interest rates rise and your 10% note is no longer attractive?

Your note's value is tied to market conditions you can't control.

Hidden Cost #5: Inflation Erosion

At 3% annual inflation:

• Year 1: Your $1,187 payment has $1,187 in buying power

• Year 5: Same payment has $1,023 in buying power (14% loss)

• Year 10: Same payment has $882 in buying power (26% loss)

Fixed payments lose value every year.

The Time Value of Money: Why a Dollar Today Beats a Dollar Tomorrow

This is the fundamental concept in finance:

Time Value of Money (TVM): A dollar today is worth more than a dollar in the future because you can invest it and earn returns.

Example:

Scenario A: Hold the Note

• Receive $1,187/month for 10 years

• Total received: $142,440

• Present value at 40% discount rate: $45,280

Scenario B: Sell the Note, Reinvest

• Sell note today for $65,000

• Reinvest in land flipping at 40% annual return

• After 10 years: $965,000

The difference: $822,560

This is why professional investors sell notes—velocity of capital matters more than interest rate.

When You Should HOLD Your Land Note

Selling isn't always the answer. Hold your note when:

✓ Reason #1: You Need Passive Income

If you're:

• Retired or semi-retired

• Want predictable monthly cash flow

• Don't have time/desire for active investing

• Already have sufficient liquidity

Then holding makes sense. The steady payments provide lifestyle funding.

✓ Reason #2: The Note Is Short-Term

If your note:

• Has 1-3 years remaining

• Is performing perfectly

• Has low default risk (buyer has excellent payment history)

Then waiting might make sense. Short time horizon reduces opportunity cost.

✓ Reason #3: You Can't Redeploy Capital at Higher Returns

If you:

• Don't have other investment opportunities

• Can't earn more than the note's yield

• Have no active business to reinvest in

Then holding preserves the return. Don't sell just to have cash sitting idle.

✓ Reason #4: The Buyer is Premium Quality

If the buyer:

• Has never missed a payment in 3+ years

• Pays early consistently

• Has the property improved or developed

• Has strong financials

Then default risk is minimal. Premium borrowers are rare—might be worth holding.

✓ Reason #5: The Interest Rate is High

If you're earning:

• 12-15%+ interest rate

• In a low-rate environment

• With strong collateral

Then the yield might justify holding. Especially if you can't match the return elsewhere.

When You Should SELL Your Land Note

Sell your note when:

✓ Reason #1: You're an Active Land Investor

If you:

• Flip land regularly (5+ deals/year)

• Earn 30-50%+ annual returns

• Have a pipeline of deals

• Need capital to scale

Then sell. Your opportunity cost is too high.

Example:

• Sell $70K note for $50K

• Flip 3 properties with that $50K

• Each nets $20K profit

• Total profit: $60K in one year

• Vs. $7K in note interest

✓ Reason #2: The Buyer Has Payment Issues

If the buyer:

• Missed 1-2 payments already

• Pays late regularly

• Requests modifications

• Has financial difficulties

Then sell before default. Once in default, note value drops 40-60%.

✓ Reason #3: You Need Liquidity Now

If you:

• Have a great acquisition opportunity

• Need capital for personal reasons

• Want to diversify investments

• Have unexpected expenses

Then sell. Liquidity has value.

✓ Reason #4: The Note Has Long Remaining Term

If your note:

• Has 7-10 years remaining

• Locks up capital for a decade

• Represents significant portion of net worth

Then sell. Long time horizons increase opportunity cost dramatically.

✓ Reason #5: Market Conditions Favor Selling

If:

• Note buyers are paying premium prices

• Land values are at peak

• You can reinvest in depressed markets

Then sell. Timing matters.

How to Calculate If You Should Sell

Use this step-by-step analysis:

Step 1: Calculate Your Note's Cash Flow

• Monthly payment: $______

• Remaining months: ______

• Total remaining payments: $______

Step 2: Determine Your Opportunity Cost

• What return can you earn elsewhere? _____%

• Estimated annual profit if capital redeployed: $______

Step 3: Assess Risk

• Buyer payment history: ______ (Excellent/Good/Fair/Poor)

• Property value vs. note balance: ______ (LTV)

• Your risk tolerance: ______ (Low/Medium/High)

Step 4: Get Current Note Value

• Contact note buyers for quotes

• Typical range: 55-75% of remaining balance

• Your quote: $______

Step 5: Calculate Scenarios

Scenario A: Hold Note

• Annual return: _____%

• Risk of default: _____%

• Management time: ______ hours

• 10-year outcome: $______

Scenario B: Sell Note, Reinvest

• Sale proceeds: $______

• Reinvestment return: _____%

• 10-year outcome: $______

Decision: If Scenario B outcome is 50%+ higher than Scenario A, sell the note.

Real Examples: Hold vs. Sell Analysis

Example #1: Active Land Flipper - Should Sell

Current Situation:

• Land note: $80,000 remaining balance

• 8 years remaining

• 10% interest rate

• Monthly payment: $1,212

• Total to receive: $116,352

Note buyer offer: $58,000

Option A: Hold Note

• Receive $116,352 over 8 years

• Risk: 20% chance of default

• Expected value: $93,082

• Opportunity cost: High (investor flips land at 40% ROI)

Option B: Sell Note, Reinvest

• Receive $58,000 today

• Reinvest at 40% annual return

• After 8 years: $858,000

• Net gain: $800,000

Decision: SELL. The opportunity cost is enormous.

Example #2: Retiree Needing Income - Should Hold

Current Situation:

• Land note: $60,000 remaining balance

• 5 years remaining

• 12% interest rate

• Monthly payment: $1,336

• Total to receive: $80,160

Note buyer offer: $45,000

Option A: Hold Note

• Receive $1,336/month (needed for living expenses)

• Low default risk (buyer has paid 5 years already)

• Total return: $80,160

Option B: Sell Note

• Receive $45,000

• No passive income stream

• Would need to find alternative investments

• Risk of burning through capital

Decision: HOLD. The monthly income is needed and hard to replace.

Example #3: Buyer Struggling - Should Sell

Current Situation:

• Land note: $70,000 remaining balance

• 9 years remaining

• 9% interest rate

• Buyer missed 2 payments last year

Note buyer offer: $42,000 (discounted for risk)

Option A: Hold Note

• Risk of default: 40-50%

• If default: Foreclosure costs $5,000, property worth $55,000

• Expected value: $35,000-40,000

Option B: Sell Note

• Receive $42,000 today

• No default risk

• Can redeploy immediately

Decision: SELL. Get out before the default happens.

What Determines Your Note's Value?

When you sell a note, here's what impacts the price:

Factor #1: Loan-to-Value (LTV)

• Property worth $100K, note balance $50K = 50% LTV → Better price

• Property worth $100K, note balance $90K = 90% LTV → Lower price

Ideal LTV: 65% or lower

Factor #2: Payment History

• Never late → Premium price

• Occasionally late → Standard price

• Frequently late → Discounted price

• Currently late → Steep discount

Factor #3: Interest Rate

• 12-15% rate → Better price

• 8-10% rate → Standard price

• 5-7% rate → Lower price

Factor #4: Remaining Term

• 1-3 years → Better price (higher yield to note buyer)

• 5-7 years → Standard price

• 10+ years → Lower price (longer risk exposure)

Factor #5: Property Quality

• Desirable location → Better price

• Good access and utilities → Better price

• Rural, hard to sell → Lower price

Factor #6: Documentation Quality

• Recorded deed of trust → Better price

• Title insurance → Better price

• Proper legal documents → Better price

• Missing paperwork → Lower price

Typical Note Pricing:

• Premium notes (low LTV, perfect payment history): 70-80% of balance

• Standard notes (moderate LTV, good payment history): 60-70% of balance

• Discounted notes (high LTV or payment issues): 50-60% of balance

• Problem notes (currently late or high risk): 40-50% of balance

The Note Selling Process

Here's what happens when you sell your land note:

Step 1: Initial Evaluation (24-48 Hours)

You provide:

• Note details (balance, interest rate, payment history)

• Property information

• Buyer information

• Copy of note and deed of trust

Note buyer provides:

• Preliminary quote

• Terms and timeline

Step 2: Due Diligence (3-7 Days)

Note buyer orders:

• Title report

• Property valuation

• Payment history verification

• Credit check on buyer (maybe)

Step 3: Final Offer (1-2 Days)

Note buyer provides:

• Final purchase price

• Closing timeline

• Terms

Step 4: Closing (7-14 Days)

• You sign assignment documents

• Buyer is notified of the sale

• New payment instructions provided to buyer

• Funds wire to your account

Total timeline: 2-3 weeks from initial contact to funding

Partial Note Sales: Get Cash While Keeping Future Payments

You don't have to sell the entire note. Consider a partial note sale:

How it works:

• Sell first 36 months of payments

• Keep payments from month 37 onward

Example:

• Note: $80,000 balance, $1,000/month payment

• Sell first 36 payments for $28,000

• After 36 months, payments revert to you

• You got immediate cash + future income

Benefits:

• Get capital now for immediate opportunities

• Keep long-term income stream

• Lower discount than selling entire note

Common Objections to Selling (And The Truth)

Objection #1: "I'm losing money by selling at a discount"

Truth: You're gaining liquidity and opportunity. The "loss" is only on paper. If you can earn 30-40% returns with the capital, you're winning.

Objection #2: "I should wait until the note is paid down more"

Truth: Time is your enemy. Every year you wait is a year of opportunity cost. The note's value won't improve dramatically just from aging.

Objection #3: "I don't want to pay taxes on the gain"

Truth: Yes, you'll recognize gain on sale. But you'll pay taxes eventually anyway. Better to pay taxes on $58,000 now and earn $200,000+ over the next few years than avoid taxes and earn $20,000.

Objection #4: "What if the buyer stops paying the new note holder?"

Truth: Not your problem once you sell. You're out—no recourse. That's actually a benefit, not a downside.

Objection #5: "I'm earning 10% interest, that's good!"

Truth: 10% is okay if you're a passive investor. But if you're an active land investor earning 40%+ returns, that 10% is costing you 30% in opportunity cost.

Tax Implications of Selling Your Note

Consult a CPA, but here's the general framework:

If you sold on installment sale:

• You've been recognizing gain as payments come in

• Selling the note accelerates recognition of remaining gain

• Taxed as capital gain (long-term if held 1+ year)

If you originally bought the note:

• Gain/loss = Sale price minus your basis

• Taxed as capital gain

Tax planning strategies:

• Time sale to low-income year

• Offset with capital losses

• Consider 1031 exchange if applicable

• Partial sale spreads recognition over time

How Damen Capital Buys Land Notes

We've purchased over 150 land notes. Here's our process:

What We Buy: ✓ Performing land notes (current on payments) ✓ Non-performing land notes (we'll buy these too, at a discount) ✓ Land contracts ✓ Seller-financed properties ✓ Notes at closing (simultaneous close) ✓ Notes anytime after closing ✓ Full or partial notes

What We Look For: ✓ Vacant land (our specialty) ✓ Clear title ✓ Reasonable LTV ✓ Documented payment history

Our Advantages: ✓ Fast closes: 7-14 days from offer to funding ✓ Competitive pricing: We pay fair market rates ✓ Direct buyer: No brokers, no middlemen ✓ Flexible: Can structure creative solutions ✓ Simple process: We handle all paperwork ✓ Experience: We understand land notes

Our Pricing: We pay based on:

• Note quality and risk

• Property value and location

• Payment history

• Remaining term

Typical pricing: 55-75% of remaining balance depending on the factors above.

Two Ways to Work With Us:

Option 1: Sell Your Note After Closing

• You've already closed and are collecting payments

• You decide to exit

• We buy the note from you

• You get lump sum, we take over collections

Option 2: Sell at Closing (Simultaneous Close)

• You're selling land with seller financing

• We commit to buy the note at closing

• You net cash at closing, just like a cash sale

• Buyer still gets seller financing terms

• Best of both worlds: You sell property faster (due to financing) but get cash

Why This Works So Well:

Offering seller financing helps you:

• Attract more buyers

• Sell faster

• Command higher prices

• Beat cash-only competitors

But you don't have to hold the note. Sell it to us at closing and get your cash.

Real Client Examples

Client #1: Sarah - Land Flipper

Situation:

• Held $65K land note earning 10%

• Active land investor doing 8 deals/year

• Capital tied up in note

Our Solution:

• Sold note to us for $47,000

• Used proceeds to buy 2 properties

• Flipped both in 5 months

• Total profit: $38,000

Result: Made $38K in 5 months vs. $6,500/year holding the note.

Client #2: Tom - Needed Capital

Situation:

• Held $90K land note

• Found amazing $120K acquisition opportunity

• Needed capital immediately

Our Solution:

• Sold note to us for $64,000

• Combined with $40K savings to buy new property

• Subdivided and sold for $240K

• Net profit: $95,000

Result: The note sale enabled a deal that made 3X the note's full value.

Client #3: Linda - Risk Management

Situation:

• Buyer had missed 2 payments

• Getting nervous about default

• Note balance: $55,000

Our Solution:

• Sold note to us for $38,000

• Avoided foreclosure hassle

• Redeployed into safer investments

Result: Got out before default happened. Buyer stopped paying 4 months later.

The Bottom Line on Selling Land Notes

Hold your note if:

• You need passive income

• Note is short-term (1-3 years left)

• You can't earn better returns elsewhere

• Buyer is premium quality

• Interest rate is very high (13%+)

Sell your note if:

• You're an active land investor

• You can earn 30%+ returns elsewhere

• Note has long remaining term (7+ years)

• You need liquidity

• Buyer has payment issues

• Opportunity cost is high

The key question: Is your capital earning its highest and best return in this note, or could it be working harder elsewhere?

For most active land investors, the answer is clear: Sell the note, redeploy the capital, and scale your business.

Key Takeaways:

• Time value of money: $1 today > $1 tomorrow

• Opportunity cost often exceeds interest income

• Default risk is real (15-25% of land notes default)

• Active investors should almost always sell

• Selling at 60-70% of balance still makes financial sense if you can earn 30-40%+ returns

• You can sell anytime—at closing or years later

Ready to unlock your capital?

Get your note quote in 24 hours.

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