Pros/Cons of originating a note

[Julie McCoy]

Hey all!  I'm new to this topic, though not at all new to BP; you'll usually find me over on the vacation rental forums.  However, I'm looking to begin to diversifying into a more passive asset class, so I intend to be spending more time over here reading and getting to know you all!

My first question pertains to note origination - first of all, I can't seem to find much on the forums about it.  Seller financing is almost always addressed from the buyer side, that I can see; and note investing typically involves existing notes.  I see the rent-to-own/lease-option forum but that's not what I'm wanting to know about, either (though if it's a better forum for this question, just let me know!).

I am interested in the pros/cons of offering seller financing on a property.  In my market (TN Smokies), it is VERY hot, and properties are often sold for cash/above appraised value, because of the value of the cash flow as a vacation rental.  I have a couple of properties I own outright, of a type that is in high demand, and it *seems* like there may be the opportunity to have my cake and eat it too with seller financing - given the market conditions, I could price at a premium, and open up the buyer pool to those who need financing but bypass the necessity of an appraisal/conventional loan qualifications etc.  For the first several years I can see great returns off the front-end interest payments, and possibly sell the note down the line, or buyer sells/refis/whatever and I'm cashed out.

Aside from the necessary costs of making sure I'm in compliance/have tight legal documents, and having to underwrite the borrower, what's the downside here?  I feel like if it's actually a great idea more people would be talking about it, so I'm wondering what the catch is.  :)