What Is A Vacant Land Note?

Your complete guide to seller financed land notes and how they work for land investors

Understanding Land Notes

A land note (also called a promissory note) is a legal document that represents the buyer's written promise to repay a vacant land loan. When you sell land with owner financing, the land note outlines the loan amount, interest rate, monthly payment schedule, and maturity date.

Key distinction: The land note is separate from the deed of trust (or mortgage), which secures the property as collateral. The note is the buyer's IOU to you; the deed of trust is your legal claim on the property if they default.

How a Seller-Financed Land Transaction Works

When you sell vacant land with seller financing, the buyer signs:

Promissory Note - Their promise to repay you
Deed of Trust (or Mortgage) - Secures the property as collateral
Warranty Deed - Transfers ownership to the buyer

Why Offer Seller Financing on Vacant Land?"

Land investors use seller financed land notes as a powerful strategy to:

Sell 2-3x Faster - Properties with "Owner Will Finance" attract more qualified buyers
Get Full Asking Price - Cash buyers expect 10% discounts; seller financing buyers pay list price
Earn Interest Income - Typical land notes earn 9-12% interest
Sell Without Cash at Closing - You can sell the note immediately for 80-90% cash (more on this below)
The Challenge: Traditional seller financing means waiting 5-10 years for full payment while managing monthly payments and default risk.
The Solution: Damen Capital purchases your land note at closing for 80-90% of balance, so you get immediate cash without the wait or risk.

How Seller Financed Land Notes Work

When you sell land with owner financing, the land note includes these key details:

Loan Amount
- The principal balance the buyer owes (sale price minus down payment)
- Example: $100K sale with $20K down = $80K note
Interest Rate
- The percentage the buyer pays you for financing
- Typical range: 9-12% for vacant land notes
Repayment Schedule
- Monthly payment amount and term length
- Typical terms: 5-10 years with monthly payments
Payment Due Dates
- Specific date each month when payment is due (often 1st or 15th)
Maturity Date
- When the final balloon payment or full balance is due
Late Fees & Default Terms
- Penalties for missed payments and your rights if buyer defaults
Prepayment Terms
- Whether buyer can pay off early without penalty
- Best practice: No prepayment penalty (makes note more valuable)
Property Description
- Legal description of the land securing the note

Important: Land Notes vs. Land Contracts

Land Note (Promissory Note with Deed of Trust)

✅ Property deeds to buyer at closing ✅ Buyer has immediate ownership ✅ You hold security interest via deed of trust ✅ Standard, legally-preferred structure ✅ This is what Damen Capital buys

Land Contract (Contract for Deed)

❌ Property stays in your name until paid off ❌ Buyer doesn't get deed until final payment ❌ Legal complications if buyer defaults ❌ More difficult to sell or transfer ❌ We do NOT buy land contracts

Always use promissory notes with deeds of trust, not land contracts.

Types of Vacant Land Notes

Land investors may encounter several types:

Fixed-Rate Land Note

Same interest rate throughout loan term
Predictable monthly payments
Most common for vacant land
Recommended structure

Adjustable-Rate Land Note

Rate adjusts based on index (rare for land)
Less common in seller financing

Balloon Payment Land Note

Lower monthly payments during term
Large final payment at maturity
Very common for land (5-10 year balloon)

Interest-Only Land Note

Buyer pays only interest for set period
Full principal due at maturity
Sometimes used for land development

Amortizing Land Note

Payments include principal and interest
Fully pays off over term (no balloon)
Less common for vacant land (long terms needed)

Most vacant land notes are: Fixed-rate with 5-10 year balloon payment at 9-12% interest.

How to Sell Your Land Note for Cash

Instead of waiting years for monthly payments, you can sell your land note for immediate cash.

How Land Note Buying Works:

Traditional Way:

Collect monthly payments for 5-10 years
Manage loan servicing
Risk buyer default
Wait for full payment

Damen Capital Way:

Sell note at closing for 80-90% of balance
Get immediate cash
Zero default risk
No loan servicing

Real Example:

Property Sale: $100,000
Down Payment: $20,000 (20%)
Note Balance: $80,000
We Purchase Note For: $64,000 (80%)
Total Cash to You: $84,000 at closing

You keep 100% of down payment + 80-90% of note = 84-90% total cash immediately.

What Increases a Land Note's Value?

Factors that make your land note worth more:

✓ Higher Down Payment (20%+ is best)
✓ Good Buyer Credit (690+ credit score)
✓ Lower LTV (loan-to-value ratio)
✓ Competitive Interest Rate (9-12%)
✓ Desirable Property (good location, access, buildable)
✓ Clean Title (no liens or issues)
✓ Proper Documentation (professionally prepared note and deed of trust)
✓ Payment History (if existing note, on-time payments)

Pro Tip: Higher down payments from buyers = higher payouts when selling notes (up to 90%+)

Key Documents in a Land Note Transaction

When selling land with seller financing, you'll need:

1. Promissory Note

Buyer's promise to repay
Includes all loan terms
Signed by buyer

2. Deed of Trust (or Mortgage)

Secures property as collateral
Recorded in county records
Protects your interest if buyer defaults

3. Warranty Deed

Transfers property ownership to buyer
Recorded at closing
Buyer owns property immediately

4. Closing/Settlement Statement

Shows all transaction details
Records down payment and loan amount

With Damen Capital: We generate all these documents for you at no cost when you use our note buying program.