How might a recession affect the business or fund? (1 of 3)

 

A little background:

 

We entered into what’s known as the COVID-19 recession in early 2020. It was one of the deepest recessions in U.S. history, with 14.7% peak unemployment and a 19.2% drop in GDP. By comparison, the Great Recession resulted in only 10% and 5.1% respectively. (Further reading)

 

For about two months, buying activity slowed down and some borrowers didn’t make their mortgage payments, largely due to some misinformation that had spread in the media. These issues were quickly resolved, and we went on to sell over $10M worth of ranchettes in 2020. This bodes well for this business’s ability to thrive during a downturn.

 

In addition, selling on owner financing and collecting on those payments is traditionally seen as a recession strategy. Doug and his colleagues saw this work extremely well during and after the Great Recession when selling real estate conventionally often proved difficult.

 

Our borrowers and the economy:

 

As a reminder, Hawthorne Interests (HI) is an entity that Doug owns. It derives income by collecting on real estate notes from the land that we have sold on owner financing. It borrows against those notes from the fund and subsequently makes monthly principal/interest payments to the fund.

 

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