I believe that at every level of risk the commercial note carries a 2-3 percentage point positive return over the residential note.

The carrying costs (particularly because you paid in cash) are not significant enough to offset the difference in rate difference not to mention the points and underwriting fees and processing fees.  

Hello,I am considering doing a seller carry-back on top of a traditional mortgage.Scenario:Buyer purchase property, property may not appraise for total purchase price, seller to carry back that margin.What are traditional terms you have all dealt with, and what happens if buyer simply defaults and no longer pays?

What kinds of insurance would I need to carry?

If it's a Lease, it CAN carry over to the new Owner.  

The plan was to buy a cheap house and sell it and carry the paper so I wouldn’t have the headache of being an out of state land lord.

But there is a way to use a 1031 exchange with an owner carry note that would allow him to defer all tax, still get the NNN property he wants, and have a stream of tax free income from you secured by the properties he's known and loved for so long. 

With a lower income I can't expand as much or fast as I'd like while carrying debt, would have to refi.

Send them a termination agreement and get it signed and carry on.

While this can have a positive effect on making sure the outcome is as anticipated, it is by no means a cure all for the land contract/contract for deed short comings.The land contract was originally used to convince a seller to sell with a small down payment and carry back a note by providing a seller with the ability to get the property back in case of default without going through the time, expense, and hassle of a foreclosure.