Only if the sale fixes a specific problem. A note that pays on time already sends you a fixed amount every month, which is the job retirement savings are meant to do. The problems worth selling for are a debt you want cleared, too much resting on one borrower, or a wish to stop being a lender.
What the note already does for you
Retirement planning is largely about replacing a paycheck. A performing note, meaning one where the payer pays as agreed, is a paycheck with an end date: you know the amount and you know when it stops.
Selling swaps that for a lump sum smaller than the balance you are owed. The gap exists because a buyer needs to earn a return on the money they pay you. So the question to settle is whether a smaller amount of cash now does more for your retirement than the payments would. Retirement is one of several occasions for asking it, and the others are set out in when selling a note makes sense.
The same note, sold, part-sold or kept
| Sell it all | Sell some payments | Keep it | |
|---|---|---|---|
| Cash at the start | The largest lump sum | A smaller lump sum | None |
| Income while the sold payments run | None | None | The full payment |
| Income after that | None | The full payment returns | The full payment |
| Total received over the note’s life | Lowest | In between | Highest |
The comparison assumes the payer makes every payment. The partial purchases guide works the same three columns through with figures.
Keeping the note pays the most, slowly, and selling it all pays the least, at once. The middle column is the one to study if you want some of each.
Reasons to sell before you retire
The clearest one is debt. If the lump sum clears a mortgage or a loan that costs you more each month than the note brings in, your monthly position improves on the day you sell.
Concentration is another. One borrower and one property is a single bet, and if that borrower loses a job in the third year of your retirement, your income stops with theirs.
Then there is the work. Tracking payments, checking the insurance and chasing a late month are manageable at 60. You may not want to be doing them at 80, or to leave them to a spouse who never dealt with the note. And if the payer has started to slip, the note will sell for more now, while the record is still mostly clean, than after more missed months.
Reasons to keep it
- You have no use for a lump sum, and the cash would sit in a checking account earning less than the note does.
- The payment covers a regular bill, such as your property tax and insurance, and you would need another source just as steady to replace it.
- The payer is reliable and the property is worth well more than the balance. That is the kind of note buyers want, which also makes it the kind worth owning.
If most of that list describes you, keeping the note is probably the right call. Our page on whether to sell your note or keep it sets out the full comparison.
Cash now, income later
A partial sale means selling a set number of upcoming payments and getting the rest of the note back afterwards. It suits someone who will work part-time for a few years, or draw on other savings first, and wants the steady income later. As an example, selling the next five years of payments on a note with twelve years left would bring a lump sum now and return seven years of payments to you after that.
You are then relying on the payer still paying when the note comes back, so read what the agreement says happens if they default while the buyer holds the payments. A partial also needs a note long enough to divide.
Questions for a CPA
How a sale is taxed, and whether a lump sum in one year affects other parts of your retirement finances, depends on your own situation. Put both points to a CPA before you decide. The answers can change which year you choose to sell in, one of the planning points taken further in selling a note to fund retirement.
Fill in the table with your own figures
The comparison above is only useful once the cells hold real numbers. Send us your note details and ask for a full-sale price and, if the note is long enough, a partial price as well, then set them beside the payments you would collect by keeping it.
Related questions
Is a note safe enough to rely on in retirement?
It depends on the payer and the property. A long on-time record and a home worth well more than the balance make a note dependable. One borrower is still one source of income, so consider how you would cope if payments stopped.
What happens to my note if I die before it is paid off?
The note is an asset that passes to your heirs or your trust like any other. They can keep collecting or sell it. Keeping the documents and payment records in order makes that far easier for them.
Can I sell part of my note now and the rest later?
Often, yes. After a partial sale you still own the remaining payments, and those can sometimes be sold later as well. Whether a second sale is possible depends on the note and the first agreement.