Sell Your Land Note vs Keep Collecting Payments in Texas: A Comparison

Every Texas land note holder eventually faces a fundamental question: should I sell my land note or keep collecting the monthly payments? It is one of the most consequential financial decisions you can make as a note holder, and the right answer depends on your specific circumstances, your financial goals, and your tolerance for the risks and responsibilities that come with holding a note over time. The sell your land note vs keep collecting payments decision in Texas is not a one-size-fits-all calculation — it requires a careful, honest assessment of what each option really means for your financial life. This comprehensive comparison will walk you through both sides of the equation, giving you the framework to make the decision that is right for you.

On one side of the equation is the steady, predictable stream of monthly payments — money that arrives in your bank account each month without any effort beyond basic management and record-keeping. There is something deeply satisfying about that kind of passive income, and for many note holders, it represents a carefully planned investment strategy. On the other side is the possibility of converting that future income stream into a lump sum of cash today — money you can use for other investments, emergencies, retirement, business ventures, or simply the peace of mind that comes with having a significant sum in the bank. Both options have real advantages and real drawbacks, and understanding them in detail is the key to making a decision you will not regret.

This article is designed to give you a thorough, balanced comparison of selling your land note versus keeping it in Texas. We will cover the financial mathematics, the risk factors, the tax implications, the lifestyle considerations, and the market conditions that should inform your decision. We will also address some of the common misconceptions that lead note holders to make decisions based on incomplete information. By the end, you will have a clear understanding of what each path looks like and the tools to evaluate which one serves your interests best.

The Financial Case for Keeping Your Texas Land Note

The Power of Interest Income

The most compelling argument for keeping your land note and continuing to collect payments is the total return. When you hold a note to maturity, you receive every dollar of principal plus every dollar of interest over the entire life of the note. For a typical Texas land note with a balance of 50,000 dollars, an interest rate of 10 percent, and a remaining term of 10 years, the total payments you would receive are approximately 79,200 dollars — the original 50,000 in principal plus about 29,200 in interest. That is a significant return on your investment, and it is the number that many note holders focus on when they decide to keep holding their note rather than selling.

The interest income from a land note is particularly attractive because it is largely passive. Once the note is set up and the borrower is making payments — especially if you have automatic payments through a servicer — your ongoing effort is minimal. Compared to actively managing rental properties, running a business, or trading stocks, holding a performing note is one of the most hands-off ways to earn a consistent return. For retirees, in particular, the predictable monthly income from a land note can serve as a valuable supplement to Social Security, pensions, and other retirement income sources. The combination of high yield and low effort makes note holding an attractive investment for many Texans.

Maintaining a Secured Investment

Another advantage of keeping your note is that it is a secured investment — your promissory note is backed by real Texas land. If the borrower stops paying, you have the right to foreclose and take possession of the property, which provides a floor under your investment. As long as the property maintains its value and the borrower continues to pay, your investment is protected by both the income stream and the underlying collateral. This security is a meaningful advantage compared to unsecured investments, and it is one of the reasons that owner-financed notes have been a popular investment vehicle in Texas for generations.

Tax Advantages of the Installment Method

If you sold the underlying property using the installment sale method, you are recognizing the gain on the sale over the life of the note rather than all at once. This can provide significant tax advantages, particularly if the gain is substantial and would otherwise push you into a higher tax bracket. By spreading the gain over many years, you may pay less in total taxes than you would if you recognized the entire gain in a single year. This tax deferral is a real financial benefit that should be factored into your sell-or-hold analysis. If you sell the note, you will generally need to recognize the remaining deferred gain in the year of the note sale, which could result in a significant tax bill. Understanding these tax implications of selling a land note in Texas is essential to making an informed decision.

The Financial Case for Selling Your Texas Land Note

The Time Value of Money

The most powerful argument for selling your land note is the time value of money — the principle that a dollar today is worth more than a dollar in the future. When you sell your note, you receive a lump sum of cash immediately that you can invest, spend, or save. That lump sum, invested wisely, can potentially generate returns that exceed the interest income you would have earned by holding the note. For example, if you sell a note for 40,000 dollars and invest that money in an asset that returns 8 percent annually, you would earn 3,200 dollars in the first year alone — and that return compounds over time. The mathematical comparison between holding the note and investing the sale proceeds is the core of the sell-or-hold analysis, and it often favors selling, particularly for note holders who have good investment opportunities available to them.

Eliminating Risk

When you sell your note, you eliminate all future risk associated with the note and the underlying property. You no longer worry about the borrower defaulting, the property declining in value, property taxes going delinquent, the property being damaged by a hurricane or flood, or any of the other risks that come with holding a note over time. The cash you receive is certain — it is in your bank account, under your control, and not dependent on anyone else's behavior or market conditions. For note holders who have experienced the stress of a late payment, a borrower communication problem, or a natural disaster near the property, the value of eliminating that risk should not be underestimated. Peace of mind has real financial value, even if it is difficult to quantify.

Liquidity and Opportunity

A land note is an illiquid asset — you cannot quickly or easily convert it into cash without selling it at a discount. This illiquidity can be a significant problem if you face an unexpected financial need, such as a medical emergency, a business opportunity, a home purchase, or a family obligation. By selling your note, you convert an illiquid asset into the most liquid asset there is: cash. Having that cash available gives you flexibility to respond to opportunities and challenges as they arise, rather than being locked into a fixed payment schedule that may not align with your financial needs. Many note holders who sell report that the flexibility and optionality of having a significant sum of cash was more valuable to them than the continued monthly income.

Understanding the Discount: What You Give Up When You Sell

Why Notes Sell at a Discount

Every promissory note sold on the secondary market sells at a discount to the remaining balance. This is not because note buyers are taking advantage of sellers — it is a fundamental principle of finance. The buyer is paying a lump sum today in exchange for a stream of payments over time, and the discount reflects the time value of money, the risk of future default, the cost of servicing the note, and the buyer's required return on investment. The size of the discount depends on several factors, including the interest rate on the note, the remaining term, the borrower's payment history, the property's loan-to-value ratio, the type of property, and the documentation quality. For a thorough explanation of how discounts work, our guide on discounts when selling a land note in Texas is an excellent resource.

Typical Discount Ranges for Texas Land Notes

Discounts on Texas land notes vary widely depending on the note's characteristics. A well-performing note with a competitive interest rate, a strong borrower, a low loan-to-value ratio, and excellent documentation might trade at a discount of 10 to 20 percent — meaning you would receive 80 to 90 percent of the remaining balance. A note with weaker characteristics — lower interest rate, thin payment history, high loan-to-value, or missing documentation — might trade at a discount of 25 to 40 percent or more. Non-performing notes trade at the deepest discounts, reflecting the additional risk and cost the buyer takes on. Understanding where your note falls on this spectrum is important for setting realistic expectations and making an informed sell-or-hold decision.

Partial Note Sales as a Middle Ground

If you want some immediate cash but do not want to sell your entire note, a partial sale may be an option. In a partial sale, you sell a specified number of payments (for example, the next 60 payments) to a buyer, and after those payments are collected, the note reverts to you for the remaining balance. This allows you to receive a lump sum now while retaining a portion of your future income. Partial sales can be structured in various ways, and an experienced note buyer can help you explore the options. For a detailed comparison, our article on full vs partial land note sales breaks down the advantages and disadvantages of each approach.

Risk Analysis: What Could Go Wrong If You Keep Holding

Borrower Default Risk

The most significant risk of continuing to hold your Texas land note is borrower default. No matter how reliable your borrower has been to date, circumstances can change — job loss, health problems, divorce, economic downturns, or simply a change in the borrower's priorities can lead to missed payments and eventually default. If the borrower defaults, you face the costs and time of the foreclosure process, the possibility of owning a property you did not want, and the risk that the property's value has declined below the note balance. The longer the remaining term of your note, the more exposure you have to this risk. A note with 15 years of remaining payments carries significantly more default risk than a note with 3 years remaining, simply because there is more time for things to go wrong.

Property Value Risk

The value of the property underlying your note can change over time, and not always in your favor. While Texas land values have generally trended upward over the long term, individual properties can decline in value due to local economic changes, environmental issues, changes in land use regulations, natural disasters, or simple market fluctuations. If the property's value drops below the remaining note balance, you are in an "underwater" position — your security interest is worth less than what the borrower owes you. This situation increases the risk of strategic default by the borrower and reduces your recovery in the event of foreclosure. When you sell your note, you transfer this property value risk entirely to the buyer.

Personal Circumstance Risk

Your own life circumstances can change in ways that make holding a note less desirable. Health issues, family obligations, relocation, retirement, or simply a change in financial priorities can all create situations where having a lump sum of cash is more valuable than a stream of future payments. If you hold the note and then need cash urgently in the future, you may be forced to sell under time pressure, which can result in a less favorable price. Selling proactively, when you have time to evaluate offers and negotiate terms, typically produces better results than selling reactively under pressure.

Lifestyle and Practical Considerations in the Decision

The Administrative Burden of Note Holding

Holding a land note comes with ongoing administrative responsibilities: tracking payments, managing records, handling late payments, filing tax documents, maintaining communication with the borrower, and dealing with any issues that arise. For a single, performing note with a reliable borrower and a professional servicer, this burden is modest. For note holders with multiple notes, difficult borrowers, or self-managed collection processes, the administrative burden can be significant. Selling the note eliminates all of these responsibilities permanently, freeing up time and mental energy for other pursuits. If you are at a stage of life where simplifying your financial affairs is a priority, selling may be particularly attractive.

Emotional and Psychological Factors

The decision to sell or hold a land note is not purely mathematical — emotional and psychological factors play a real role. Some note holders derive satisfaction and security from the steady monthly income and are uncomfortable with the idea of giving it up. Others find that the ongoing worry about borrower reliability, property condition, and market changes creates a level of anxiety that diminishes their quality of life. There is no right or wrong emotional response — what matters is that you honestly assess how holding the note makes you feel and factor that into your decision. If the note is a source of stress rather than comfort, the emotional benefit of selling may be just as valuable as the financial benefit.

Estate Planning Considerations

If you are thinking about your estate and what you will leave to your heirs, the form of your assets matters. A lump sum of cash or liquid investments is generally easier for heirs to manage and divide than a promissory note. A note requires ongoing management, may involve complexities if the borrower defaults during the estate settlement process, and can be difficult to divide equally among multiple heirs. Selling the note and converting it to a more liquid form simplifies estate planning and ensures your heirs receive their inheritance in a form they can readily use. This is a consideration that many note holders do not think about until late in life, but it is worth considering at any age, particularly if your note represents a significant portion of your net worth.

Making the Decision: A Framework for Texas Note Holders

When Keeping Makes the Most Sense

Keeping your land note and continuing to collect payments is generally the best choice when the note is performing well with no signs of trouble, the interest rate is competitive and provides a strong return, you do not need a lump sum of cash for any specific purpose, you enjoy the passive income and find it easy to manage, the remaining term is relatively short so total default risk is limited, and you do not have alternative investment opportunities that would provide better risk-adjusted returns. If all or most of these conditions apply to your situation, holding the note may well be the optimal choice.

When Selling Makes the Most Sense

Selling your land note is generally the better choice when you need a lump sum of cash for a specific purpose such as a home purchase, medical expenses, business investment, or debt payoff. It also makes sense when you are concerned about the borrower's long-term ability to pay, when the administrative burden of managing the note has become tiresome, when you want to simplify your financial life for estate planning or retirement, when you have attractive investment opportunities that require capital, or when you simply want the certainty and peace of mind that comes with having cash in the bank rather than a promise of future payments from a borrower.

Getting a Professional Evaluation

The best way to inform your decision is to understand exactly what your note is worth on the open market. Longhorn Note Buyers provides free, no-obligation quotes within 24 hours, giving you a concrete number to work with in your analysis. Knowing the actual market value of your note — not a guess, but a real offer from a real buyer — allows you to compare the lump sum you would receive against the stream of future payments you would give up. Armed with that information, you can run the numbers, consider the risks and lifestyle factors, and make a decision with confidence. There is no obligation to sell just because you get a quote, and many note holders find that the process of getting a quote clarifies their thinking even if they ultimately decide to keep the note.

Ready to Sell Your Note?

If you are weighing the decision to sell your Texas land note or keep collecting payments, Longhorn Note Buyers can help you make an informed choice. With over $46 million in Texas notes purchased and a 100 percent close rate on every deal they quote, Longhorn brings unmatched experience and credibility to the process. Founded by Nick McFadin — who has been buying notes since 1983 — and partnered with Sandy McFadin since 2013, Longhorn Note Buyers is a San Antonio-based company that deals exclusively in Texas notes and understands the market like no one else. Call (210) 828-3573 or visit longhornnotebuyers.com today for a free, no-obligation quote. Whether you ultimately decide to sell or hold, having a professional evaluation of your note is the smart starting point for making the best financial decision.

Frequently Asked Questions

How much will I lose if I sell my Texas land note instead of keeping it?

The term "lose" is somewhat misleading in this context. When you sell your note, you receive a lump sum that is less than the total remaining payments you would collect over the life of the note — this is the discount. However, you are also eliminating years of risk, administrative burden, and the time value of money. The discount typically ranges from 10 to 40 percent of the remaining balance, depending on the note's characteristics. To determine whether selling represents a "loss" in the true sense, you need to compare the lump sum you receive against what you could earn by investing it, factored against the risk of continuing to hold the note. In many cases, the net financial outcome of selling and reinvesting is competitive with holding, especially when risk is factored in.

Can I sell part of my note and keep the rest?

Yes, partial note sales are a common option. In a partial sale, you sell a specified number of future payments to a buyer and retain the right to collect the remaining payments after the partial sale period ends. This allows you to receive some immediate cash while preserving a portion of your future income stream. Partial sales can be structured in various ways depending on your needs, and an experienced note buyer like Longhorn Note Buyers can help you evaluate whether a full or partial sale is the best fit for your situation.

What is the biggest risk of keeping my note long-term?

The biggest risk is borrower default combined with a decline in property value. If the borrower stops paying and the property has lost value — due to market changes, environmental issues, or neglect — you could end up going through the foreclosure process only to recover a property worth less than what you are owed. This scenario can result in a net loss after factoring in foreclosure costs, back taxes, and the time value of the money you did not receive during the default period. While this worst-case scenario does not happen to every note holder, the longer you hold a note, the more exposure you have to this risk.

How quickly can I get cash if I decide to sell?

The timeline for selling a Texas land note depends on the buyer and the complexity of the transaction, but with an experienced buyer like Longhorn Note Buyers, you can typically receive a quote within 24 hours and close within two to four weeks. Straightforward notes with clean documentation and clear titles can sometimes close even faster. If speed is a priority for you, communicating that to the buyer upfront and having your documents organized and ready can help accelerate the process.

Will I have to pay taxes if I sell my note?

Yes, selling a promissory note has tax implications. If you are using the installment sale method to report the gain on the original property sale, selling the note will generally trigger recognition of the remaining deferred gain in the year of the note sale. You may also have capital gains implications depending on how the note sale is structured. The specific tax impact depends on your individual situation, including your original cost basis in the property, the amount of gain you have already recognized, and your overall tax picture. Consulting with a qualified tax advisor before selling is strongly recommended so you can understand the full financial picture and plan accordingly.