How might inflation affect the business or fund?


Inflation is impacting individuals, businesses and governments in various ways, both positive and negative. Below are some of the ways it can impact the business and/or fund:


Real estate values tend to rise with inflation. That includes rural land. This means that we now must pay more for land when we buy. It also means that we sell for more, so it’s not necessarily a positive or negative in this regard.


Over time, inflation leads to higher wages and higher profits in nominal dollars. Hawthorne Interests (HI) collects monthly payments from those who bought ranchettes on owner financing. These payment amounts don’t change, thus making them more affordable in comparison with our borrowers’ higher wages and/or profits over time. This helps HI keep its default rate down, which provides HI with a more reliable steam of income. That stream of income is used to pay loans from the fund and its investors by extension.


On occasion, HI must foreclose on a borrower, take possession of the underlying land and resell it. A desirable outcome is reselling the land for more than it was first sold for and generating an even larger note with a larger monthly payment coming in. This is much more likely when land values have gone up. Inflation is helping that to happen.


Some other types of investments rise with inflation. That could make them more appealing to some of our current or prospective investors, thus making it more difficult for us to attract or retain investor capital. This has not happened thus far. One reason could be that many of those types of investments appear to be overvalued and/or high-risk.


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