Buying and Selling Notes for Residual Income

Here’s one reason to love real estate notes… surprise payoffs! For years we have been talking about the benefits of keeping some payments as residual income when buying, selling, or brokering notes.

This is not just theory – it really works.

Buying Real Estate NotesNeed proof? Just last month we were fortunate enough to get one of those surprise payoff checks for $57,569.28!  And that was on a note we sold back in May of 2000.

Now before you start thinking this is some sort of easy overnight riches please understand that this does NOT happen on every deal.  In fact the average note broker fee is about 3-6% of the amount invested by the note buyer. (Check out How Much Money Will I Make in the Note Business for more on this topic.)

But when you combine the power of interest with time and the partial purchase there is an opportunity to earn residual income. How is this possible? Well here are the details from the initial note sale followed by the payoff update.

Excerpt From Article Real Deal #151 – Residual Income With Notes!

We were approached with a well-seasoned note secured by five retail strip mall type commercial units. The units had been purchased by a religious organization to use as meeting facilities.  The particulars looked like this:

  • Sale Price: $135,000
  • Down Payment: $10,000
  • Original Balance: $125,000
  • Terms: 10% interest payable in 360 payments of $1,096.96 per month
  • Remaining Balance: $121,248.52
  • Remaining Term: 306 months

We negotiated to pay $92,804 for the full purchase of the remaining 306 monthly payments.  We took a full assignment and purchased the entire note payment stream from the seller.

We then negotiated to sell a partial of 186 monthly payments for a purchase price of $95,046.  We realized an immediate profit of $2,242 on the sale of the note AND retained the right to receive 120 monthly payments of $1,096.96 each commencing in 15 ½ years.

To recap:

  • Payments bought: 306
  • Payments sold: 186
  • Payments retained: 120

Money was made at closing but even better, we retained the rights to a future residual income stream totaling over $130,000 ($1,096 x 120).

If you have heard me speak at conventions this is the “Buy Full Sell Short” or “Tail-End Payments” strategy on the deal affectionately referred to as The Church Note. You also know there are three reasons I prefer to broker rather than hold church notes:

  1. They are often single or special use buildings;
  2. Income is dependent on donations from the congregation (so if the pastor runs off with the organist it’s quite possible donations would go down); and
  3. If they don’t pay who wants to be the one to foreclose on a house of God?

So we were happy to sell this note, make a small fee of $2,242 at closing, and keep a future piece of the cash flow in the form of monthly payments when the investor’s partial paid off in December of 2015. Instead it was,  “Surprise – the buyer paid the note off early!”  So rather than getting $1,096 per month for ten years we received the present value of those future payments in cash today.

Understanding The Partial Note Purchase and Schedule B Amortization

If you are scratching your head wondering, “How is this possible?”, then it’s time to discover the time value of money along with the Schedule B or partial amortization.  It varies by partial agreement, but basically there are three balances or amortization schedules going on at any given time.

  • Schedule A –  The full balance amortization owed by the buyer or payer
  • Schedule B – The partial balance amortization owned by the investor
  • Schedule C – The remainder interest due to the seller and/or note broker (or A minus B equals C).

At the time this deal was sold:

  • the full balance (A) was $121,248.52
  • the partial balance (B) was $103,515.87
  • and the remainder balance (C) was $17,732.65.

Then almost 12 years went by when the buyer paid off in March 2012 so the figures had changed to:

  • a full balance payoff (A) of $96,915.46
  • a partial balance payoff (B) of $39,346.18
  • and the remainder interest (C) had increased to $57,569.28!

(Now if you are following along with your Best Financial Calculator and 7 Tips for Calculating Cash Flow Notes you will notice some slight variations in answers.  These are due to adjustments for extra payments and other servicing items. This is also a good place to mention that we don’t provide legal, financial or tax advice so please seek the counsel of an attorney, financial planner, or accountant if you need this type of assistance.)

So the full balance and the partial balance went down as monthly payments came in but the remainder balance went up!  Why? That is from harnessing the power of interest at the face rate of the note over time!

Want more advanced strategies and calculations for selling and buying mortgage notes?  Be sure to login to the member’s area of How To Calculate Cash Flow Notes.  You can view step-by-step tutorials including the partial amortization schedule B from Mastering Partials for Maximum Profits.

Whether you are a note broker, a note buyer, or a real estate investor using owner financing, you can put these time value of money strategies to work!

About Tracy Z

Tracy combines her knowledge of cash flow notes with the power of marketing online to help grow your business! She can be reached at 1-888-999-7905 or at Exposure One Marketing.


  1. trying to understand amortization schedule when buying partial note does the investor buy the tail end of the note or commences at the time of purchase becase to my understanding the tail end of note receive less interest payment correct ?
    need to understand this

    • Hell Anand, Most investors that buy partials will want the immediate for front-end payments. In our example we sold the front-end payments and then kept the future or tail-end payments as profit. You could be the investor that buys the front payments or the investor that keeps the tail-end payments. It just depends on your strategy. Here is an additional article on the topic of calculating the amortization schedules using TValue software that might be helpful: We also have affordable training videos that got through examples and sample documentation.

  2. Pernell Whitfield says

    Hello Tracy, it was a pleasure reading from your site. I am a member of Charter Financial. I have had to stop doing the business for a while because of health issues. I am a Air Force Vet. just retired from the VA here in Atlanta. I want to get back into the note business and am reeducating myself. I have heard so much about you and have received several of your emails. I am looking to partner with a company (like Charter Financial) where I can start to broker notes with to develop a residual income. With the goal to one day buy them myself. Do you have any suggestions as to where I can get some very good training material to get back started? Any suggestions would be greatly appreciated. Thanks in advance for all you do and the valuable information you put out. Be blessed.

    • Hello Pernell. Welcome back to the note business and thanks for your service. I’m hopeful your health issues are improved. We appreciate you reading and commenting here on our Note Investor blog. We invite you to read the 300+ free articles in our blog archives on the site. We also offer affordable trainings and support through our Bookstore if you need additional assistance. We look forward to working with you.

  3. James W Sherrill says

    Feb. 4, 2019
    Tracey, I am a Sr. living in Virginia. I have a 43k Note earning 5.5% with 48 months remaining. It is collateralized with real estate with improvements. I would like to cash out in order to diversify in some other areas. I am looking for an investor/ purchaser that I can sell/assign to directly. What is a fair discount that would attract a buyer ?


    • Hello James,
      Thanks for commenting here on our site. The amount of discount depends on a few items individual to each note. This includes the buyer’s equity, buyer’s credit, how long they have been paying, the terms of the note and the property type/condition. We would be happy to review your note at no cost of obligation. You can provide details online at: or you are welcome to email me at: Thanks, Tracy

    • Hello James my name is Daniel I saw your post I’m a note broker, I work with private investors who buy notes in corporations. My website www Capricorn notes ph# 8885086895 We also provide a no obligation quote. Thsnk you Daniel surls

    • Hi James
      I am interested in quoting your note. Feel free to check out my web site Look forward to speaking with you. Dave Franecki 4807638376

  4. Tracy
    I have found partials to be a great tool. Learned alot from your calculator course.
    Dave Franecki
    Capstone Capital USA

  5. Tracy Z Well done article. This is my second article Ii have read of yours and I am impressed. I like the idea of partial note buying because it reduces the risk.

  6. I wish to sell note on residential property. I sold it on contract in December of 2013. It has a balloon payoff in January 2019. The first mortgage balance is 32,000 at 5% that matures also in January 2019. My 2nd note is for $200.000 at 4.5%. Present property value is about $250,000. Buyer has missed no payments. I’m old and wish to have the cash.


    I have two investment properties that have positive cash flow. However, I have incurred some high-interest debt I’d like to payoff. Can I sell a note on my mortgages or a note on the cash flow?

    • Hello David,

      The investors that we work with purchase the seller financed notes at a discount (rather then make loans). If you are receiving payments on property sold we can assist with the cash out. If you are looking for a loan on property you own then you would want to work with a lender.

  8. Tracy Z,
    This may be a noobish question, but how in the world do you keep track of all of these amortization schedules? I can see if you own a few of these notes how that could be quite consuming especially if they deviate from the foretasted amortization schedule by applying extra principal payments ect…

    Also, If I were to buy a seller financed note where the original seller was paid directly, would it be possible to change the note to a note service to collect payments ect? How difficult would that be?

    Forgive the basic questions, I’m very new to the note game but interested in learning.
    Jeff V

    • Hello Jeff, Your solutions is right on track. You can have a company experienced in servicing private mortgages and partial purchases keep track of the full and partial balance. If the note payer has been paying the seller directly you can set this up after purchasing the note. This is a smart option on both full and partial purchases. It is a fairly straight forward process with reasonable servicing fees involved. Should the note payoff early you will want to double check the partial payoff numbers with the servicer before funds are released.

  9. George Wimberly says

    Hello Tracy. This is George Wimberly. I am a person that wants to learn how to invest in Mortgage Notes. I want to know can you email me pertinent information and or arcticles about Investing on a Mortgage Notes. My email is

  10. want to buy huge quantity of bank notes daily or weekly

    please contact me if you know of any suppliers of these

  11. HI, Tracy. The information that you are share is very helpful for me. Because i am just learning the note Business and studying each day about the business, Yes, their is a lot of numbers and information that you have to take in slowly in this business, but i just wanted to say thank you for helping beginners in this business.

  12. nathan mayer says

    Where do I buy notes ? Who sales them ?

  13. Tracy, VERY WISE STRATEGY, congratulations on the pay off and let me say, I absolutely agree!
    Years ago, I purchase an entire note and sold a Partial to Becky at Associates. Years later i received a $13k surprise too (pd off earlier then expected) . And sweet it was and it could not of come at a better time because i had about $12.00 in my checking account. Ha!!
    Important to note, i only gave up about $700 (approx) in broker fee for the right to receive the $13k. so, the transaction result was; I paid my bills with the partial sale to associates and funded my tax-free account with the “tail-end” IRA purchase.
    Just a thought, your students should consider buying the note with their investors money, make a broker fee to pay the bills, give up part of their broker fee have their Roth IRA fund the purchase of the tail-end for $100 and receive profits for tax-free growth and withdraw.
    This will slap huge profits in their tax-free account.. very cool or, have their children’s college education account buy the tail-end to fund their grandchild’s college education or, use the tail-end to fund a balloon pmt they owe on a real estate purchase.
    On and on and on it goes… great strategy, excellent article. Keep up the good work Tracy. Take it easy, Kent

    • Hello Kent! Thanks for commenting and “sharing the love” for this strategy. I know this is a topic near and dear to your heart too and combining with an IRA makes it even better. We also buy deals into our IRA for tax-free and/or tax-deferred investments. We also like some income before retirement so we have mixed it up a little. This one was held by the company so we will be setting aside a portion for “Uncle Sam” for this 2012 tax year. I also had to keep tabs on this one as the original investor sold the note. (I’m sure this has probably happened to you too!) Fortunately it was serviced by a reliable servicing agent and they did a good job of keeping track of the schedule B for everyone. It was one of the few times I didn’t have to provide it myself 🙂

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