What interest rate should you have on your owner carry promissory note?
At least 3% higher than current mortgage lending rates. Since you are not cashing out and may be tied to your note for the next 10-20-30 years, this is one of the ways you protect yourself. Plus, should you decide to sell your note, a higher interest rate will help in getting the best possible price for your note.
Here is what you DO NOT want to do. Several years ago, we closed a transaction with a professional man who sold a home to a friend. The terms were 10% down, 0% interest, 30 years! The discount was huge, but after discussion with family and an advisor, he accepted the offer. He realized that by trying to help a friend he hurt himself.
The terms must be strong, fair and protective of your interest.