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27th January 2011
By John Hill in Real Estate Law
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Let’s say that you’ve made your property beautiful and in sale-ready condition, but when you get ready to sell it, there are very few buyers interested. Or, perhaps there are numerous buyers wanting to buy the property, but they cannot qualify for a loan.

Consider offering owner financing and creating a real estate note (also called a mortgage note). This simply means that you become the “bank”. While you would still use a title company and mostly the same documents as when a bank is involved, you and the buyer make an arrangement for him or her to make monthly payments to you over a period of time and at a specified interest rate.

First, you need to understand what situations are not appropriate for owner financing. If you owe more on your house than it is worth or if the amount that you owe is even close (within 25%) to the property value, then owner financing is not appropriate. In the ideal situation for owner financing (a real estate note is the legal document involved), you should owe very little on the property or even better own it free and clear. Another time when carrying a real estate note may not be appropriate is if the property is badly damaged or has other major issues.

In nearly every other situation, creating a real estate note is worth considering. Here are some of the advantages of creating a real estate note:

More potential buyers for your property
Ongoing monthly income to you, thus giving you much more money over time
You can potentially charge a higher sales price and a bigger interest rate
Much of the tax gain is deferred as you receive your money over time

Of course, there are also risks in carrying a real estate note:
You need to monitor the payer to be sure that they are making the payments, carrying insurance on the property, keeping up with property taxes, etc.
If there is a default, you would not receive payments for a period of time and may incur costs until you can foreclose and sell the property

You can address these risks by selling the note to a mortgage note buyer. That way, you can have successfully sold the property and be cashed out when you sell the mortgage note. Information on structuring a real estate note and finding a mortgage note buyer can be found among my other articles.


Alan Noblitt is the owner of Seascape Capital Inc., which buys real estate note. He may be reached at (858) 672-4678 or toll-free at 1-800-634-4697. If you would like to learn more about notes and read informational articles, visit
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