What impact is inflation having? (2 of 2)



Positive: 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 make monthly payments to the fund and its investors by extension.


Neutral: Returns on some other types of investments tend to rise with inflation. That could make them more appealing to some of our current or prospective investors, therefore 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 are seen as overvalued, high-risk, volatile, or unappealing for other reasons.


Positive: 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 and/or incomes have gone up, even if it’s only in nominal dollars. Inflation has caused and is causing both of those things to happen.



Leave a Reply