Selling a Commercial Promissory Note in Texas: Your Options

If you hold a commercial promissory note in Texas, you already know that the world of commercial real estate financing operates by a different set of rules than residential deals. The stakes are higher, the numbers are bigger, and the complexity of the transactions can make even experienced investors think twice about their next move. But one thing remains consistent across both worlds — if you hold a note and you want cash, there is a market ready to buy it.

Commercial notes in Texas cover an enormous range of properties and situations. You might be holding a note on a strip mall in suburban Houston, an office building in downtown Dallas, a warehouse in San Antonio, a restaurant space in Austin, or a mixed-use development in Fort Worth. Each of these scenarios comes with its own set of considerations, but the fundamental process of selling the note follows the same general framework.

This guide explores your options for selling a commercial promissory note in Texas, including the unique factors that affect commercial note pricing, the differences between selling commercial and residential notes, and how to position your note for the best possible outcome.

Understanding Commercial Promissory Notes in Texas

A commercial promissory note is the debt instrument that documents a borrower's obligation to repay a loan used to acquire or refinance a commercial property. Like its residential counterpart, a commercial note is typically paired with a deed of trust that secures the loan against the property. The note holder — whether that is the original seller who provided financing or an investor who acquired the note — has the right to receive payments according to the terms of the note and can sell that right to another party.

What Makes Commercial Notes Different

Commercial notes differ from residential notes in several important ways that affect both their value and the process of selling them.

First, the amounts are generally larger. While a residential seller-financed note might range from $30,000 to $200,000, commercial notes can easily reach into the millions. Larger note sizes can actually work in your favor when selling because the transaction economics are more favorable for the buyer — the same amount of due diligence effort yields a larger investment.

Second, commercial notes often have more complex terms. You might encounter variable interest rates, interest-only periods, balloon payments, prepayment penalties, personal guarantees, and cross-collateralization clauses that are rare in residential notes. These terms all affect the note's value and require a buyer with commercial lending experience to evaluate properly.

Third, the properties securing commercial notes are evaluated differently. Instead of looking at comparable sales the way you would with a house, commercial properties are typically valued based on their income-generating potential. A buyer evaluating your note will look at the property's rental income, occupancy rates, lease terms, operating expenses, and net operating income rather than just the building's physical characteristics.

Types of Commercial Notes You Can Sell

The commercial note market in Texas is broad enough to accommodate virtually any property type. Common categories include retail properties like shopping centers, strip malls, and standalone retail buildings; office space including single-tenant and multi-tenant buildings; industrial properties such as warehouses, distribution centers, and manufacturing facilities; hospitality properties including hotels, motels, and extended-stay facilities; multifamily properties with five or more units; mixed-use developments that combine commercial and residential space; and special-purpose properties like gas stations, car washes, or self-storage facilities.

Each property type carries its own risk profile, and that profile directly affects the pricing of the note. Notes secured by stabilized, multi-tenant properties with long-term leases are generally the most valuable. Notes on single-tenant properties or special-purpose buildings may carry more risk because the loss of that single tenant or the specialized nature of the building limits the pool of potential future users.

Your Options for Selling a Commercial Note

When you decide to sell a commercial promissory note, you have several paths forward. The right choice depends on your financial needs, your timeline, and the characteristics of your specific note.

Option 1: Full Sale to a Direct Note Buyer

The most straightforward option is selling your entire note to a direct buyer. In a full sale, you transfer all of your rights — both the promissory note and your beneficial interest in the deed of trust — to the buyer in exchange for a lump sum of cash. The buyer collects all remaining payments from the borrower going forward.

This option makes sense when you want to completely exit the position, you need the maximum amount of cash available, and you prefer not to have any ongoing involvement with the note or the borrower. Direct buyers like Longhorn Note Buyers who specialize in Texas real estate notes can evaluate your commercial note quickly and make a cash offer, often within 24 hours.

Option 2: Partial Sale

If you do not need the full value of your note in cash, a partial sale lets you sell a specified number of future payments while retaining the rest. You get immediate cash and you keep a future income stream.

This approach can be particularly effective with commercial notes because the larger payment amounts mean you can access significant cash by selling a relatively small number of payments. For example, if your commercial note has a $5,000 monthly payment and you sell the next 36 payments, you might receive a substantial lump sum while still retaining the right to receive all payments from month 37 onward. For a more detailed comparison, see this resource on full vs. partial note sales.

Option 3: Sell to an Institutional Buyer or Fund

For larger commercial notes — generally those with balances above $500,000 — institutional buyers and note funds may be interested. These buyers often have lower cost of capital, which can translate to a better price for you. The trade-off is that institutional buyers tend to have more extensive due diligence requirements and longer closing timelines. If your note is well-documented, the property is strong, and you are not in a rush, this can be an option worth exploring.

Option 4: Use a Note Broker

A note broker acts as an intermediary, marketing your note to their network of buyers and negotiating on your behalf. The advantage of using a broker is access to a wider pool of potential buyers, which can sometimes result in a better price through competition. The disadvantage is that brokers charge a fee — typically a percentage of the sale price — that reduces your net proceeds. If you are considering this route, weigh the potential price improvement against the cost and the additional time the process may take. For context on the broker vs. direct buyer decision, check out this comparison of note brokers versus direct buyers.

Key Factors That Affect Commercial Note Pricing

Commercial note pricing is driven by a combination of factors that relate to the note terms, the borrower, and the property. Understanding these factors gives you a realistic picture of what to expect and helps you identify opportunities to position your note for a better price.

Property Performance and Income

For commercial notes, the income-generating capacity of the underlying property is paramount. A buyer will want to know the property's gross rental income, operating expenses, net operating income, vacancy rate, and the terms of any leases in place. A well-occupied property with long-term leases from creditworthy tenants provides predictable cash flow that supports the borrower's ability to make note payments.

Conversely, a property with high vacancy, short-term leases, or tenants with questionable creditworthiness introduces uncertainty. The note buyer has to consider the possibility that rental income could decline, making it harder for the borrower to meet their obligations. This risk is reflected in a lower purchase price.

Borrower Strength

In commercial lending, the borrower's financial strength matters even more than in residential transactions. A buyer will assess the borrower's net worth, liquidity, other real estate holdings, business income, and credit profile. If the borrower has personally guaranteed the note, that guarantee adds an extra layer of security that can improve the note's value.

A borrower who is an established real estate investor or a successful business owner with significant assets presents a very different risk profile than an inexperienced buyer who stretched to make the purchase. The stronger the borrower, the more valuable the note.

Payment History

Just as with residential notes, the borrower's payment history on the commercial note is a critical valuation factor. Consistent, on-time payments over an extended period demonstrate that the borrower is both willing and able to meet their obligations. A commercial note with 24 or more months of perfect payment history will command a significantly better price than one with recent delinquencies.

Note Terms and Structure

The specific terms of your note influence its attractiveness to buyers. Key elements include the interest rate, which determines the yield for the buyer; the remaining term, which affects the duration of the buyer's risk exposure; the amortization schedule, which determines how quickly principal is being paid down; any balloon payment provisions, which introduce refinancing risk; prepayment penalties, which protect the buyer's expected return; and personal guarantees, which provide recourse beyond the property itself.

Commercial notes with straightforward, fully amortizing structures at competitive interest rates are the easiest to sell. Notes with complex terms, variable rates, or imminent balloon payments require more sophisticated buyers and may command lower prices.

Loan-to-Value Ratio

The current LTV ratio tells the buyer how much cushion exists between the note balance and the property's value. In commercial transactions, buyers typically look for LTV ratios of 70 percent or lower. If your borrower made a substantial down payment and property values have held steady or increased since the sale, your LTV is likely in a favorable range.

If the LTV is above 80 percent — meaning the note balance is close to or even exceeds the property's current value — the pricing will reflect that elevated risk. In some cases, notes with very high LTV ratios may be difficult to sell at any price.

The Selling Process for Commercial Notes

The process of selling a commercial note follows the same general sequence as a residential note sale, but with some additional complexity in the due diligence phase.

Initial Consultation and Quote

You start by sharing the details of your note with a prospective buyer. For commercial notes, the buyer will want to see the promissory note, deed of trust, payment history, property financials including rent rolls and operating statements, and any environmental reports or surveys. Based on this information, the buyer provides a preliminary offer.

Enhanced Due Diligence

Due diligence on commercial notes is typically more extensive than on residential notes. In addition to the standard title search and property valuation, the buyer may review lease agreements, tenant credit profiles, environmental assessments, zoning compliance, insurance coverage, and any pending litigation related to the property. This process can take two to four weeks depending on the complexity of the deal.

Closing

Once due diligence is complete, the closing process is similar to a residential note sale. The promissory note is endorsed to the buyer, the deed of trust is assigned and recorded, and the purchase price is wired to your account. The borrower is notified of the change in ownership and given new payment instructions.

Positioning Your Commercial Note for the Best Price

While you cannot change the fundamental terms of your note, there are steps you can take to present it in the best possible light and maximize your proceeds.

Organize Your Documentation

A complete, well-organized document package signals professionalism and reduces the buyer's uncertainty. Include current property financials, copies of all leases, a clear payment history, the original note and deed of trust, title insurance policy, and any environmental or inspection reports. Buyers who receive a clean, comprehensive package are more confident in their valuation and more likely to offer a strong price. For guidance on documentation, see this overview of documents needed to sell a note.

Verify Property Insurance and Compliance

Make sure the property has current hazard insurance, that the borrower is in compliance with all note covenants, and that property taxes are current. Issues in any of these areas will come up during due diligence and can delay or derail a sale.

Be Transparent About Issues

If there are known problems — deferred maintenance on the property, a tenant that recently vacated, a borrower who was late on a few payments six months ago — disclose them upfront. Buyers appreciate transparency, and problems that surface during due diligence after not being disclosed create distrust that can kill a deal or reduce the price far more than the issue itself would have.

Why Longhorn Note Buyers for Commercial Notes

Longhorn Note Buyers brings over four decades of note buying experience to every transaction, with more than $47 million in notes purchased across Texas. Their expertise extends across all property types, and their familiarity with the Texas commercial real estate landscape means they can evaluate your note accurately and move quickly.

What particularly matters for commercial note sellers is Longhorn's 100 percent close rate and their ability to fund transactions without relying on outside capital or investors who might change their minds. When Longhorn makes you an offer, that offer is real, and the deal closes. Combined with 24-hour turnaround on quotes and an A+ BBB rating, they represent the kind of reliable, professional buyer that commercial note holders need.

Ready to Sell Your Note?

If you hold a commercial promissory note in Texas and you are ready to explore your options, the first step is a confidential conversation about your note. Contact Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to get your free, no-obligation cash offer within 24 hours. Whether your note is on a strip mall, an office building, a warehouse, or any other commercial property, Longhorn has the experience and the capital to make you a fair offer and get the deal done.

Frequently Asked Questions

Can I sell a commercial note if the property is partially vacant?

Yes. A commercial note on a property with some vacancy can still be sold, but the vacancy will factor into the pricing. Buyers will assess the remaining tenants, the lease terms, the market demand for that type of space, and the likelihood of re-leasing the vacant space. A property with one vacancy in an otherwise strong market will be treated very differently than one with significant vacancy in a weak market.

Are commercial notes harder to sell than residential notes?

They are not necessarily harder, but they do require a buyer with more specialized knowledge. Commercial note evaluation involves analyzing property income, tenant credit, lease structures, and market conditions in addition to the standard note terms and borrower profile. Not every note buyer has the expertise to handle commercial paper, so it is important to work with a buyer who regularly deals with commercial notes.

What if my commercial note has a balloon payment coming due soon?

A balloon payment that is due within the next 12 to 24 months introduces refinancing risk — the buyer has to consider whether the borrower will be able to refinance or pay the balloon when it comes due. This risk typically results in a lower price unless the borrower has strong financials and the property supports conventional refinancing. Some buyers may still be interested, but they will price the balloon risk into their offer.

Is there a minimum note balance to sell a commercial note?

Most note buyers prefer commercial notes with remaining balances of at least $50,000, and many focus on notes of $100,000 or more. The due diligence costs for commercial notes are relatively fixed regardless of note size, so smaller notes can be less economical for buyers to pursue. That said, every situation is unique, and it is worth requesting a quote regardless of your note's size.

Do I need a commercial real estate broker to sell my note?

No. Selling a promissory note is not the same as selling a property, and you do not need a real estate broker to facilitate the transaction. You can sell directly to a note buyer, which often results in a faster process and lower costs since there are no brokerage commissions to pay. A direct buyer handles the entire process from quote to closing.