One of the most useful tools in the seller finance note world is the partial. If you’ve ever wanted to pull some cash out of a loan you created without giving up the whole asset, this is a great strategy to know.
What is a partial?
A partial is exactly what it sounds like: you sell a portion of the future payments on a performing loan to another investor at a fixed interest rate, while keeping the rest for yourself. For example, say you own a performing loan with 240 payments left. You might sell the next 36 payments to an investor at a 9% yield. They collect those 36 payments. Once they’re paid in full, the loan reverts back to you and you collect payments 37 through 240 on the back end. It’s important to note that partials only work on performing loans. You’re selling a payment stream, so you need a payment stream that’s actually showing up. There’s a lot of flexibility in how these get structured. You can sell full payments, fractional payments (where you keep a slice of each payment to create monthly cash flow), or somewhere in between. Servicing can transfer to the partial buyer or stay with you. None of this is one-size-fits-all, which is part of why partials cause so much confusion in the first place.
Why the partial seller wins
From the seller’s perspective, a partial lets you recover some of your capital up front while keeping the long-term upside. Here’s an example:
- You have a loan with a balance of $240,000 with 240 payments of $2300 remaining
- You sell the next 36 payments of $2300 to an investor giving them a return of 9%
- The partial selling price would be $72,327
- You keep payments 37-240, and the loan balance will be $226,641 when it comes back to you after the partial period.
Notice that although you sold 3 years of payments in this example, you only gave up less than 6% of the actual loan balance. That’s because the early payments are primarily interest.
Why the partial buyer also wins
Partials are a great entry point for newer note investors. The buyer:
• Gets a fixed yield (typically 7%–10%) backed by a performing loan
• The partial buyer gets the earlier payments, which have the lowest risk
• Doesn’t have to source the deal or do the heavy due diligence themselves • Has the original investor’s skin in the game, since you still have the back-end payments to protect
• Can deploy smaller amounts of cash, which can be especially useful when funding from a self-directed IRA
Structuring the partial
A few things to think through Before you set one up, make sure you’ve thought through:
• Who keeps servicing—you or the buyer?
• What happens if the loan stops performing? Typically the seller is responsible for the workout, but this needs to be spelled out clearly.
• Are you selling full payments, fractional payments, or some other arrangement?
• Do you have proper paperwork? Get an attorney to draft your partial agreement. There are too many variables to use a generic template.
How to find partial buyers
This is where some people can get stuck. Here are a few approaches that work:
- Build your own investor list from your network
- Go where note buyers actually are. Note Expo (held in Dallas in November) and Diversified Mortgage Expo (Nashville in May) are two of the best places to network with active investors.
- Note buying focused Facebook groups like JKP Note Investing and Creating Wealth Simplified Through Note Investing have a steady flow of active investors.
- Network with self-directed IRA investors. Custodians like Inspira, Equity Trust, and Advanta hold events where IRA investors are specifically looking for fixed-yield opportunities. These are often the easiest partial buyers because they’re not chasing the highest possible return—they want predictable income inside a tax-advantaged account.
There are many ways to recapitalize loan you created, and selling partials can be a great one to learn.