Sell Your Land Note vs Refinance in Texas: Pros and Cons

When you need to access the value locked in a Texas land note, two primary options emerge: sell your land note to an investor or refinance the note through a lending institution. The sell your land note vs refinance comparison in Texas is one that many note holders grapple with, and the right answer depends on your specific financial goals, your timeline, the characteristics of your note, and your appetite for ongoing obligations. Both paths convert a future income stream into present-day value, but they do so in fundamentally different ways with different implications for your financial life. This thorough comparison will help you understand exactly what each option entails so you can choose the path that serves you best.

It is important to clarify what we mean by "refinance" in this context. When most people think of refinancing, they think of a borrower refinancing their loan — paying off an existing note with a new loan at better terms. But in this article, we are talking about you, the note holder, using the note as collateral to borrow money from a lender. This is sometimes called a "note-backed loan," a "pledge of note," or a "hypothecation" — you borrow money from a bank or private lender, using your promissory note and deed of trust as collateral for the new loan. This gives you a lump sum of cash while you continue to own the note and collect the borrower's payments. It is a fundamentally different transaction from selling the note, and understanding the differences is critical to making the right choice.

This guide will walk through both options in detail — the mechanics, the costs, the risks, the tax implications, and the practical considerations that should inform your decision. Whether you are leaning toward selling or borrowing against your note, or simply trying to understand all of your options, this sell your land note vs refinance analysis for Texas note holders will give you the information you need.

How Selling Your Texas Land Note Works

The Mechanics of a Note Sale

Selling your Texas land note is a clean, permanent transaction. You identify a note buyer, provide documentation about your note and the underlying property, receive a purchase offer, and if you accept, the closing involves endorsing the note and assigning the deed of trust to the buyer. You receive a lump sum of cash — the purchase price — and the buyer takes over all rights and responsibilities associated with the note, including collecting future payments from the borrower, managing the relationship, and handling any defaults or foreclosure situations that may arise. Once the sale is complete, you have no further connection to the note, the borrower, or the property. The transaction is final and irreversible.

The purchase price you receive when selling a note is less than the remaining balance — this is the discount that reflects the time value of money, the buyer's required yield, and the risk factors associated with the note. As discussed in our detailed guide on discounts when selling a land note in Texas, typical discounts range from 10 to 40 percent of the remaining balance for performing notes, depending on the note's interest rate, the borrower's payment history, the loan-to-value ratio, the property type, and the documentation quality. The net amount you receive is the full purchase price with no additional fees or commissions deducted — what you are quoted is what you get.

Advantages of Selling

The advantages of selling your note are significant and straightforward. You receive a lump sum of cash immediately — no ongoing obligation, no monthly loan payments, no interest expense. You eliminate all risk associated with the note — borrower default, property depreciation, collection hassles, and administrative burden. You gain complete financial freedom to use the proceeds however you choose, whether for investment, debt reduction, retirement, business ventures, or personal needs. The transaction is simple, fast (typically two to four weeks), and final. For note holders who value certainty, simplicity, and freedom from ongoing obligations, selling is often the most attractive option.

Disadvantages of Selling

The primary disadvantage of selling is the discount. You receive less than the total remaining payments you would collect if you held the note to maturity. This is the trade-off for receiving cash today rather than payments over time. For note holders who do not need a lump sum and are comfortable with the ongoing risks and responsibilities of holding, the discount may feel like an unnecessary concession. Additionally, selling the note triggers tax consequences — if you have been deferring gain under the installment sale method, the remaining deferred gain is recognized in the year of the note sale. For some note holders, this tax hit can be significant and may affect the timing of a sale decision.

How Refinancing Against Your Texas Land Note Works

The Mechanics of a Note-Backed Loan

Refinancing in this context means borrowing money from a lender using your promissory note and deed of trust as collateral. The lender evaluates the note — its terms, the borrower's payment history, the underlying property, and the remaining balance — and offers you a loan based on a percentage of the note's value. This loan is typically structured as a term loan with monthly payments, an interest rate, and a maturity date. You receive the loan proceeds as a lump sum and use the borrower's monthly payments on the original note to help service the new loan. You continue to own the note, collect the borrower's payments, and manage the note relationship — but you now also have a loan obligation to the lender.

Finding a lender willing to make a loan secured by a privately held owner-financed note can be challenging. Most conventional banks do not make this type of loan because they are unfamiliar with the collateral and the risks involved. Private lenders, hard money lenders, and some specialty finance companies do make note-backed loans, but the terms are typically less favorable than conventional real estate loans. Interest rates on note-backed loans often range from 8 to 15 percent, and loan-to-value ratios are typically conservative — the lender may only advance 50 to 70 percent of the note's remaining balance. Origination fees, appraisal costs, and legal fees can add to the upfront cost of the loan.

Advantages of Refinancing

The primary advantage of refinancing against your note is that you retain ownership. You continue to collect the borrower's payments and earn interest income on the original note. If the borrower pays off the note (through the balloon payment or early payoff), you receive the full remaining balance — no discount. You also maintain the option to sell the note in the future if your circumstances change. In essence, refinancing gives you a partial liquidity event — you get some cash now while preserving the long-term value of the note. For note holders who believe strongly in the note's long-term value and want to avoid the discount associated with selling, refinancing can feel like a way to have their cake and eat it too.

Disadvantages of Refinancing

The disadvantages of refinancing are substantial and often underappreciated. First, you are taking on new debt — the loan must be repaid with interest, regardless of whether the borrower on your original note continues to pay. If the borrower defaults, you still owe the lender. This creates a layer of additional risk that did not exist before the refinance. Second, the interest rate on the new loan may approach or even exceed the interest rate on your original note, which means your net income from the note could be minimal or even negative. Third, the loan-to-value ratio means you are only receiving a fraction of the note's value as cash — often less than you would receive by selling the note outright. Fourth, finding a lender willing to make this type of loan is difficult, and the process can take considerably longer than a note sale. Fifth, you retain all of the ongoing obligations of note ownership — servicing, record-keeping, tax reporting, and default management — while also carrying the new loan obligation.

Side-by-Side Comparison: Selling vs Refinancing Your Texas Land Note

Cash Received

When you sell your note, you typically receive 60 to 90 percent of the remaining balance as a lump sum, depending on the note's characteristics. When you refinance, you receive 50 to 70 percent of the remaining balance as a loan — but this is money you must repay with interest. The cash you receive from a sale is yours to keep permanently. The cash you receive from a refinance is borrowed money that creates an ongoing obligation. This fundamental distinction is often obscured in the comparison, but it is critical: selling gives you free-and-clear capital, while refinancing gives you borrowed capital with strings attached.

Ongoing Obligations

After selling your note, you have zero ongoing obligations. No borrower to manage, no payments to collect, no records to keep, no taxes to file, and no loan to repay. After refinancing, you have double obligations — you must continue managing the original note and borrower relationship while also making payments on the new loan and complying with the lender's requirements. This doubling of obligations is a significant practical disadvantage, particularly for note holders who were considering selling because they wanted to simplify their financial lives.

Risk Profile

Selling eliminates risk entirely — you have cash in the bank and no exposure to future events. Refinancing actually increases risk — you now face the risk of your borrower defaulting (which was always there) plus the risk of defaulting on the new loan (which is new). If the borrower stops paying and you cannot service the new loan from other sources, you face a cascading default scenario that can result in the lender foreclosing on your note and you losing both the note and the cash flow. This compounded risk is the most dangerous aspect of refinancing and is often underestimated by note holders who focus on retaining ownership without fully appreciating the new risks they are taking on.

Tax Implications

Selling the note triggers recognition of any remaining deferred gain from the original installment sale, which can create a significant tax liability in the year of the sale. Refinancing does not trigger gain recognition because you are borrowing money, not selling an asset — the loan proceeds are not taxable income. This tax deferral advantage is one of the legitimate benefits of refinancing over selling. However, it is important to note that the tax bill is deferred, not eliminated — you will eventually recognize the gain when the note is paid off, sold, or otherwise disposed of. Whether the tax deferral is worth the additional cost and risk of refinancing depends on your overall tax situation and should be evaluated with the help of a qualified tax advisor. For background on note sale taxation, our article on tax implications of selling a land note in Texas provides useful context.

When Selling Your Note Is the Better Choice

When You Want Clean, Simple Liquidity

If your primary goal is to access the value of your note without taking on new obligations, selling is the clear winner. You get cash, you are done, and you move on. There are no loan payments to make, no ongoing borrower management, and no risk of cascading defaults. For note holders who are retiring, simplifying their financial affairs, or need cash for a specific purpose without wanting to add debt, selling provides the cleanest path to liquidity.

When You Are Concerned About Borrower Risk

If you have concerns about your borrower's long-term ability to pay — whether because of late payment patterns, economic conditions in the borrower's area, or the approaching balloon maturity — selling the note transfers that risk entirely to the buyer. Refinancing against the note while retaining it means you are still exposed to borrower default, and now you have a loan obligation on top of it. If the borrower defaults and you have a note-backed loan, you face the worst of both worlds — no income from the borrower and a payment due to the lender. Selling eliminates this risk scenario completely.

When Speed Matters

Note sales can be completed in two to four weeks with an experienced buyer like Longhorn Note Buyers. Arranging a note-backed loan from a specialty lender can take four to eight weeks or longer, depending on the lender's due diligence process and the complexity of the transaction. If you need cash quickly, selling is the faster option.

When Refinancing Might Make Sense

When Tax Deferral Is a Priority

If triggering the remaining deferred gain would push you into a significantly higher tax bracket and you have the capacity to service the new loan comfortably, refinancing can provide tax-advantaged liquidity. The loan proceeds are not taxable income, so you get cash without the immediate tax hit. This advantage is most significant for note holders with large remaining deferred gains who are in high tax brackets. However, the tax savings must be weighed against the interest cost of the loan, the fees, and the additional risk — in many cases, the after-tax cost of the loan exceeds the tax savings.

When You Strongly Believe in the Note's Long-Term Value

If your note has an excellent interest rate, a rock-solid borrower, and a property that is appreciating, and you believe the total return from holding the note to maturity significantly exceeds the cost of the refinance loan, then refinancing allows you to access some cash while preserving the long-term upside. This is essentially a leveraged bet on the note's continued performance — you are borrowing against the note's value to access cash while retaining the income stream and eventual payoff. Like any leveraged strategy, it amplifies both returns and risks. If the note performs as expected, you come out ahead. If something goes wrong, the losses are compounded by the loan obligation.

The Practical Reality for Most Texas Note Holders

Why Most Choose to Sell

In practice, the vast majority of Texas land note holders who decide to access their note's value choose to sell rather than refinance. The reasons are practical: selling is simpler, faster, and eliminates risk. The discount, while real, is a known and accepted cost of achieving certainty and liquidity. The difficulty of finding a lender willing to make a note-backed loan, the unfavorable loan terms, and the compounded risk of carrying two obligations make refinancing unattractive for most note holders. For those who have weighed both options carefully, selling typically wins on the merits unless there is a very specific tax or financial planning reason to prefer refinancing.

Longhorn Note Buyers works with Texas note holders every day who have considered both options and chosen to sell. With over $46 million in Texas notes purchased and a 100 percent close rate on every deal quoted, Longhorn provides the certainty, speed, and fair pricing that makes the selling decision comfortable. Getting a quote from Longhorn is free and carries no obligation — it simply gives you a concrete number to compare against the terms of any refinancing option you may be considering.

Ready to Sell Your Note?

If you are weighing the decision to sell your Texas land note versus refinancing it, Longhorn Note Buyers can help you make an informed choice. With a free, no-obligation quote delivered within 24 hours, you will have the concrete information you need to compare your options. Longhorn Note Buyers has purchased over $46 million in Texas notes since 2007 with a perfect close rate and a BBB A+ rating. Nick McFadin has been buying notes since 1983, and the team's deep knowledge of the Texas market means you will receive an accurate, fair evaluation. Call (210) 828-3573 or visit longhornnotebuyers.com today. Whether you ultimately decide to sell or explore other options, knowing what your note is worth is the essential first step.

Frequently Asked Questions

Can I actually borrow against my owner-financed note in Texas?

Yes, it is possible to borrow against an owner-financed note using the note and deed of trust as collateral for a loan. However, finding a lender willing to make this type of loan can be challenging. Most conventional banks do not offer this product, so you would typically need to work with a private lender, hard money lender, or specialty finance company. The terms are generally less favorable than conventional real estate loans, with higher interest rates, lower loan-to-value ratios, and significant fees. The difficulty of arranging this type of financing is one reason many note holders choose to sell instead.

How much more money do I keep by refinancing versus selling?

This is a common misconception — refinancing does not necessarily result in keeping more money. While you retain the note and its future income stream, the refinance loan creates an ongoing cost in the form of interest payments, fees, and the eventual repayment of principal. When you calculate the total cost of the refinance loan over its term and subtract it from the total income you receive from the note, the net benefit over selling can be minimal, zero, or even negative — particularly if the loan's interest rate is high or if the borrower defaults before the note is fully paid. A thorough financial analysis comparing both options is essential before making a decision.

What happens if my borrower defaults after I have refinanced?

If your borrower defaults on the original note after you have taken out a note-backed loan, you face a difficult situation. You lose the income stream from the borrower that you were using to service the new loan, but your obligation to the lender continues. You would need to either service the loan from other sources, negotiate with the lender, or risk defaulting on the loan yourself — which could result in the lender foreclosing on your note. This cascading risk scenario is one of the most significant dangers of refinancing versus selling, and it is a risk that does not exist if you sell the note outright.

Is selling a partial note a middle ground between selling and refinancing?

Yes, a partial note sale can serve as a middle ground. 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 gives you a lump sum now — similar to refinancing — while preserving some future income — similar to holding. Unlike refinancing, a partial sale does not create a new debt obligation, so there is no compounding risk. The trade-off is that the per-payment discount on a partial sale may be steeper than on a full note sale. For more on this option, our article on full vs partial land note sales provides a detailed comparison.

How quickly can I get cash from selling versus refinancing?

Selling a Texas land note through an experienced buyer like Longhorn Note Buyers typically takes two to four weeks from initial contact to cash in hand. Arranging a note-backed loan can take four to eight weeks or longer, depending on the lender and the complexity of the transaction. If speed is important, selling is the faster option. Even if speed is not your primary concern, the shorter timeline of a note sale means less uncertainty and less time spent on the transaction, which has value in its own right.