Tax Liens & Mortgage Notes
Market News & Data
General Info
Real Estate Strategies

Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal


Real Estate Classifieds
Reviews & Feedback
Updated over 4 years ago on . Most recent reply

Pros/Cons of originating a note
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. :)
Most Popular Reply

Thanks for the input, all! I think there are some market conditions in my particular area that make this potentially a little sweeter than it might be elsewhere, but I want to be cautious and educated before I make a move in any case. (and honestly I may decide I'll be better off just holding the property and taking the cash flow it's generating - other than a hiccup in April our local travel industry is going STRONG. Identical cabin next to the one I have in mind is 100% booked until after Labor Day, for example)
Regardless I plan to spend a lot more time on this forum educating myself on notes, and I look forward to learning more from you all. (@Chris Seveney I just started listening to Good Deeds - which every time I see the title makes me think of Good Omens, haha)