A note that pays on time will bring you more in total if you keep it than if you sell it. Selling makes sense when the lump sum has a specific job, or when depending on one payer has become a risk you no longer want. A partial can cover a set need without giving up the income for good.
Some holders created their note on purpose as a retirement plan: sell the house or the land, carry the financing, and collect a check every month. If that plan is working, this page may talk you out of selling. If something has changed, it will help you decide how much of the note to turn into cash.
What you are trading
Think of the note as a retirement income with a fixed end date. Selling it swaps that income for a lump sum smaller than the payments would have added up to. The difference is the discount, and it exists because buyers pay less than the balance owed so that the payments give them the return they want on their money.
For a retiree the monthly figure matters as much as the price. Suppose, as an example, your note pays $1,000 a month and has ten years to run. That is $12,000 a year arriving without any decision on your part, $120,000 over the ten years if the payer keeps paying. A sale replaces it with one sum that you then have to place somewhere and draw down yourself. Before looking at any offer, ask whether you can live without the monthly payment, and for how long.
The case for keeping it
If the payment is part of your budget, covering the utilities and the groceries, a lump sum has to be made to do the same job and it has to last. The interest is also hard to replace safely: your note pays you its stated rate every month, so before selling you should know what the cash would earn wherever you plan to put it.
A reliable payer in a property worth well over the balance makes the note attractive to buyers, and those same qualities make it a good note to hold. And if you have no particular plan for the money, selling means paying a discount to move it into a checking account.
Reasons that do justify selling
Nothing has gone wrong with the note in this case, which sets retirement apart from most situations in which selling a note makes sense. The reasons have to come from your own plans, and these are the ones that hold up.
Too much depends on one payer
A note is one borrower and one property. If it is a large share of what you have, a single default would hurt badly, and the remedy is a legal process that costs money and takes time. Spreading that risk is a sound reason to sell some or all of it.
You do not want to manage it any more
Tracking payments, chasing late ones, checking that taxes and insurance are paid: these get harder with age and distance. A servicing company can take over the collection for a fee while you stay the owner. If you want to be done with it entirely, a sale does that. See when you are tired of collecting payments.
You have a use for a lump sum
Clearing your own mortgage before your income drops, paying for a move, or doing the work on the house that lets you stay in it all come with a figure attached, and that figure is what tells you how much of the note to sell.
You are thinking about your heirs
A note left to several children becomes a shared asset they have to manage together. Some holders would sooner convert it to cash in their own lifetime, or sell part and simplify the rest. An estate planning attorney can tell you how a note fits into your plans.
The note outlasts your plans
A note with fifteen years left to run suits a 60-year-old differently from an 80-year-old. Selling the far end of a long note, or all of it, can bring forward money you would prefer to use sooner.
Where a partial fits a retirement plan
You do not have to choose between the whole note and nothing. In a partial, a buyer pays you a lump sum for a fixed run of the coming payments, collects those, and then the note is assigned back to you and the payer pays you again until it is finished.
That has a useful shape for someone a few years from retiring or newly retired. Sell the next five years of payments, say, and the income stops for five years and then resumes for the rest of the term. If you are still working during the gap, or have other income to cover it, you have moved money to where you need it and kept the back end of the note. The fewer payments you sell, the less of the discount you pay.
| Cash now | Monthly income | What you still carry | |
|---|---|---|---|
| Keep the note | None | Continues without a break | All the risk of the payer stopping |
| Partial: sell a run of payments | A lump sum sized to the payments sold | Stops, then returns | The risk on the payments that come back |
| Split-payment partial | A smaller lump sum | Reduced for a period, never zero | The risk on your share of each payment |
| Full sale | The largest lump sum | Ends | Nothing |
The third row is a split-payment partial, in which you sell part of each payment and keep the rest, so some income continues throughout. Partial vs full note sale: the numbers side by side puts dollar figures on the other rows.
A partial has a real downside. The payments that come back to you are years away, and they only arrive if the payer is still paying then, so that risk stays with you. Buyers also want a dependable payer before they will offer one.
What to settle before you decide
- What is the money for, and how much is that? If you cannot name a figure, you are probably not ready to sell.
- What replaces the monthly payment? Add up your other income for the years the note would not be paying you.
- What will tax do to the result? A seller who carried the financing may have been reporting the gain on the property gradually, as payments came in. Selling the note can change that timing, and a larger income in one year can affect other things that are tied to income. This varies by person and by state, so take the offer to a CPA before you accept it.
The second of those is best done on paper. Write your retirement budget with the note payment in it and again without it, and see which years are short. If there are none, the note is doing its job. If there are some, ask us to price the note as a full sale and, where the payer’s record allows, as a partial covering those years, and put the figures in front of your CPA next to the budget.
If retirement is still a few years off
Nothing forces the decision now. Each on-time payment lengthens the record a buyer will read and lowers the balance against the property’s value, and both of those work in the note’s favor when you do come to sell. So whether to sell before you retire is mostly a question of whether you have a use for the money yet. If you do not, redo the budget each year as the date gets closer, and leave the note alone until a short year shows up in it.
Related questions
Is a note a good retirement asset to hold?
It can be. A note with a reliable payer and solid equity in the property pays a fixed amount every month at a set interest rate. Its weakness is concentration: everything depends on one borrower and one property.
Can I sell part of my note and keep some monthly income?
Yes, where a buyer will offer a split-payment partial on your note. You sell a portion of each payment for a set period and keep the rest, so income never stops. It raises less cash than selling the same number of whole payments.
Will selling my note affect my taxes in retirement?
It may. Selling can change when gain from the original property sale is taxed, and a larger income in one year can have knock-on effects. The result depends on your own situation, so ask a CPA before accepting an offer.