Your daughter is getting married. Your son needs a car to get to his first job. A tuition bill just showed up. You need $20,000, and your note pays you $600 a month.
Most note holders think they have two choices: wait, or sell the whole note. There's a third choice most people never hear about. You can sell just enough payments to cover what you need, and keep the rest.
Short version: Tell a note buyer the amount you need. They figure out how many payments it takes. You get the cash now. When those payments are done, your monthly checks come back to you.
How it works
Say your note has 15 years of payments left. You don't have to sell all 15 years. You can sell the next three or four years and keep everything after that.
- You pick the amount. $10,000, $20,000, $30,000. Whatever the bill is.
- The buyer does the math. They tell you how many payments it takes to get that amount.
- You get paid. Usually in about four to five weeks.
- The payer sends those payments to the buyer. Nothing else changes for them.
- Then your checks start again. After the last payment you sold, the note comes back to you.
This is called a partial note sale. For a deeper look at the math, read partial note sales explained, with real numbers.
Real numbers: how many payments for the cash you need
Here's an example note. For the math, I'll assume a buyer wants a 12% return. Your real number depends on the payer, the property, and the paperwork.
The note: $62,000 balance at 8%, paying $592.50 a month, with 180 payments (15 years) left.
| Cash you need | Payments you'd sell | Payments back to you after | Still coming to you |
|---|---|---|---|
| $10,000 | 19 (about 1.5 years) | 161 | about $95,400 |
| $20,000 | 42 (3.5 years) | 138 | about $81,800 |
| $30,000 | 71 (about 6 years) | 109 | about $64,600 |
Compare that to selling the whole note. At the same 12% return, the whole note brings about $49,400, and you're done. With the $20,000 partial, you get your $20,000 now and still have about $81,800 coming later.
These figures are before closing costs. On my deals, the property value check, title search, and attorney run about $900 to $1,250 total. They come out of the offer.
A smaller note works too
The note: $35,000 balance at 9%, paying $443.37 a month, with 120 payments (10 years) left.
| Cash you need | Payments you'd sell | Still coming to you after |
|---|---|---|
| $10,000 | 26 (about 2 years) | about $41,700 |
| $15,000 | 42 (3.5 years) | about $34,600 |
| $20,000 | 61 (about 5 years) | about $26,200 |
A shorter note has fewer payments to work with. So the same cash takes a bigger bite. That's normal.
What people use a partial for
These are the kinds of things sellers tell me they need cash for:
- A wedding for a son or daughter
- A car for a kid starting work or school
- College tuition, books, or housing
- A new roof or a big repair on their own home
- Paying off a high-rate credit card
- Medical bills or a gap in income
- Helping a child with a down payment on their first home
You don't have to explain why you need the money. But knowing the amount helps me build the right offer.
Things to know before you do it
- Very small amounts may not make sense. Closing costs are about the same whether you sell $5,000 or $40,000 of payments. On a small amount, the costs eat a bigger share.
- The payments you sell are gone for that stretch. If you count on that monthly check for bills, plan for the gap.
- At least a year should come back to you. I always leave at least 12 payments coming back to the seller. Most partials leave much more.
- A balloon stays with you. If your note has a balloon payment, I work around it. The balloon stays yours.
- Ask what happens if the payer pays off early. The buyer gets paid first from the payoff, up to what was agreed. You get the rest. Get it in writing.
- Taxes can be lower than a full sale. You're only cashing out part of the note this year. Talk with your CPA. See taxes when you sell an owner-financed note.
Is a partial better than a loan?
Sometimes. A partial has no new monthly payment and no credit check. It doesn't put a loan on your credit report or your house. But if you can borrow cheaply, a loan may cost less. Read partial note sale vs a loan to compare.
How to find out your number
Use the note value calculator. Pick "I need a set amount of cash," enter what you need, and it shows a rough range and how many payments it takes.
Or send me your note details. Under "What are you thinking?" pick "Sell part," and a box asks how much cash you need. I'll send you two offers: the partial that covers your number, and the whole note, so you can compare.
Frequently asked questions
Can I sell just a few payments on my mortgage note?
Yes. It's called a partial note sale. You sell a set number of upcoming payments for cash, and the rest of the note stays yours.
How do I know how many payments I need to sell?
Tell the buyer how much cash you need. They work backward from that amount, based on your payment, rate, and the risk on the note.
Will my payer know I sold some payments?
Yes. They get a letter telling them where to send payments during that stretch. Their terms don't change. Read what happens to the payer when you sell your note.
Can I sell more payments later?
Usually, yes. If the payer keeps paying on time, many buyers will buy another piece later.
How fast can I get the money?
Most sales close in about four to five weeks from the first quote. If you have a date, like a wedding, tell me up front.
Why do I get less than the face value of the payments?
The buyer pays you today and waits years to collect. The discount covers that wait and the risk that the payer stops paying.
Larry has invested in real estate since 2006 and has bought more than 300 mortgage notes. He runs LJH Investments, LLC, an Ohio company based in Madison, Indiana. More about Larry
This article is general information, not legal or tax advice. Laws change. Talk with your own attorney and tax adviser about your situation.