Set the rate at 5.5% because it felt fair, then the best note bid was 68,500

The line I'm taking from this is that the terms you write are the asset, and you wrote the asset before you knew who'd ever want to buy it. I've been stuck in analysis for months and this is the first thing that's made me want to actually call somebody and ask a price.

I did the same thing on the other side of the table, sort of. Gave a buyer a rate I felt good about instead of a rate that priced what he was getting from me. Being the nice guy in the negotiation is fine as long as you know what the nice costs. You paid about 17k for it and you found out eighteen months later, which is the worst time to find out anything.

No balloon on a 30 year note as an individual seller is the part I'd flag hardest. It's not just resale pricing. You've written a document that outlives your interest in the property by decades, and every provision in it has to work for 28 more years, including whatever happens when the buyer dies or transfers it. Did the note get a due on sale clause? If not you've also given away the right to decide who your borrower is.

The 68,500 quote was close to rational pricing, which is the useful part of this. 88,000 at 5.5% over 30 years is 499.68 a month, and after 18 months the balance is around 85,900 with roughly 342 payments left. Discount that stream to 68,500 and the buyer is earning about 7.8% annually. Note buyers on seasoned owner occupied paper in that price range often want low double digits. At a 10% target the same stream prices closer to 56,000. So the offer you got reflected your coupon and your term, and a colder buyer would have gone lower.

Two levers move that number more than the interest rate does. First, duration. A five year balloon returns most of the principal on a known date, so the buyer's money isn't committed for three decades and the price rises. Second, investment to value. 8,000 down on 96,000 leaves the note buyer at roughly 89% of the sale price, and the sale price is a data point rather than an appraisal. A larger down payment and a supported value both narrow the discount.

The assumption your whole structure rested on is that you'd never need the principal back. If that's true, a 5.5% coupon held to term is a defensible choice and the resale discount is irrelevant. If it might not be true, write the note so it's sellable. A partial sale is also worth knowing about, where a buyer purchases a set number of payments and the note reverts to you afterward, which often nets more than selling the whole thing.

Whether an assignment of the note and deed of trust has to be recorded, and how, varies by state, so confirm the mechanics in writing with a real estate attorney licensed where the property sits before you plan around a sale.

It took me a while to work out what the expert reply meant. So a note is a thing with a price that somebody else sets, and the price depends on terms you already signed. That's the bit I didn't have.

kestrel, did the buyer even ask for 5.5? Or did you volunteer it. I ask because in my experience the person who can't get a bank loan is not shopping rate, they're shopping for a yes.

The expert's ITV point is the one I'd underline. At 89% of a price you set yourself, the note buyer is being asked to trust your sale as the valuation, and they won't. Every point of extra down payment does double duty, it lowers their exposure and it proves the borrower had skin in it. 8,000 on a 96,000 house tells a note buyer almost nothing about the borrower.

I'd never once thought about the note as something with a resale market, even after all the reading I've done. I'd have written 5.5 for the same reason you did.

I'll push back slightly on the framing of the loss. You didn't lose 17,400. You declined to sell at 68,500 and you're collecting 5.5% on 85,900 with a clean payer, which is around 4,700 a year of interest against a note you'd have to work fairly hard to replace at that risk level. The real cost is the difference between your rehab financing and what you'd have paid otherwise, plus the deals you couldn't do because the capital was stuck. That's a liquidity cost and it's probably a lot smaller than 17k. It's still the right lesson, just check which number you actually paid.

ledger is right about the accounting and it doesn't change what I'm writing on my list, which is: ask a note buyer for a quote on the note before you write it. Free phone call, apparently worth five figures of optionality.