Originating a note on a free-and-clear property and selling that note

[Jerry Kisasonak]

I recently heard an investor very briefly talk about the strategy of creating a note on a free and clear property and selling that note. I have free and clear properties and wondered if I could originate a note and sell the note to pull equity out of the property(s) without actually refinancing or selling. Does anyone have experience with this strategy? What are the pros and cons?

[Eric M.]

Yeah, I understand your predicament but you are still talking very expensive money with this scheme that may be illegal. Note buyers want to make 15%+ on their money.

In my experience, lending is not quite as tight as you indicate. In fact, it is again looser than I think it should be in many areas. You need to beat the bushes though. Call a lot of lenders and explain your situation.

Over the years, many people have questioned why I don't take every opportunity to "shelter" my income or make more passive income or why I am a w-2 employee of my companies. But this situation is why. You may have saved some taxes but you cost yourself a lot in options for financing. It can make life a lot smoother and get great mortgage rates when you can just show a big w-2 number. With a good AGI, you could get 4% money on your properties. Without it, you pay 12-15% or you don't get it at all. That is huge opportunity costs you are paying for how you have structured your investments.