Note Holders: How Long Do You Plan to Keep Your Notes?

Question

If you own a mortgage note, do you view it as a long-term investment that you plan to hold until maturity, or would you consider selling it if the right opportunity came along?

What would influence your decision most—your current cash flow, the remaining term of the note, your need for liquidity, or your plans for investing elsewhere?

Lauren Sanford · Answer

@Mark Adams El  its all based on the numbers.  We have held notes for 2 years and some 10.  Our currently longest held note we bought in 2013.

Chris Seveney · Answer

it depends on every single note. you also have to remember that previously people would refinance or remove approximately every 7 years but that number has now increased. i believe it is closer to 10 years. the reality of someone being in a home for 30 years is not a high percentage so at some point the borrower most likely will sell or refinance.

we manage our portfolio of over 150 loans and are constantly buying loans, selling loans, and getting payoffs. we sell for many reasons including getting cash to buy new loans or rebalancing the portfolio as we buy both performing and non-performing.

Don Konipol · Answer

All posts here are real good, @Michael Eskenasy provided and especially good answer with great clarity.

For my fund and for myself, I rarely sell a note, tho sometimes I will sell an ownership interest in note I hold in my personal portfolio. The criteria for this partial ownership sale is that I’ve purchased the note at a large discount to unpaid balance and have as a result a well above market yield.  This allow me to create a much higher yield on my invested capital by selling a 50% interest at a much smaller discount to unpaid balance.

For the last 5 years or so we’ve had more capital than we do good deals to invest in, so selling notes we own paying us 15% + annually between renewal points and interest rate would not be a profitable transaction.

Michael Eskenasy · Answer

@Don Konipol

That’s the part people miss: liquidity by itself isn’t the objective — capital efficiency is.

If the note is already producing 15%+ and there isn’t a better place to redeploy the proceeds, selling the whole thing can actually destroy value. Selling a partial interest at a tighter discount is different because you can pull capital forward, raise the return on the dollars you still have invested, and keep exposure to the underlying yield.

That distinction between “selling a note” and “recycling a portion of the capital” is a really important one.

Ashish Acharya · Answer

Mark, for me the decision would come down to yield, remaining term, payment history, and what I could do with the cash if I sold the note.

If the note is performing well, has a strong borrower, and the yield is still attractive compared with other opportunities, holding it to maturity can make a lot of sense. But if selling the note frees up capital that can be redeployed into something with a meaningfully better risk-adjusted return, I’d at least run the numbers.

I’d also look at the remaining unpaid balance versus what the note would actually sell for today. A buyer may discount the note depending on rate, payment history, collateral, remaining term, and perceived risk, so the liquidity number can be very different from the face value.

From the tax side, I’d review the structure before selling. The treatment can depend on whether this was a seller-financed note you originated from a property sale or a note you purchased as an investment. Interest income, your basis in the note, any discount or premium, and potentially installment-sale treatment can all affect the after-tax result.

So I wouldn’t make the decision based only on “I need cash.” I’d compare the after-tax value of selling today versus the remaining after-tax cash flow from holding to maturity.

Feel free to DM me, I’d be happy to send over a few tax-planning resources that might be helpful.

Note Holders: How Long Do You Plan to Keep Your Notes?

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