Should You Hold a Mortgage?

Selling a vacation home or other property in today's market can be difficult. Even if you find a potential buyer, the buyer might have trouble securing financing. If you're willing to hold a mortgage on the property, you may be able to make a deal. But should you? Here are some things to think about when you are weighing the decision.

Price. Since you won't receive the full sale price up front, you should expect to receive a better price for your property from a buyer who wants you to hold a mortgage than from someone who can pay cash.

Cash flow. If you have a short-term need for cash -- to buy another property, pay off your own mortgage, or pay college or medical bills, for example -- holding a mortgage may not be a good option for you.

Return on investment. You'll want to compare the interest rate the buyer is willing to pay on the mortgage with the rate of return you might be able to earn if you reinvested the full after-tax sale proceeds in an alternative investment.

Risk. Even if you're comfortable with the buyer now, there's always the chance the buyer could default on the note later on and you'd have to foreclose. Is that a risk you're willing to take?

Taxes. If you hold a mortgage, you'll generally report any profit on the sale gradually, in the years you receive payments from the buyer. Be sure you've assessed the impact on your taxes before you make your ­decision.