Why Smart Real Estate Investors Buy When Everyone Else Is Afraid | Lon Welsh

Lon Welsh (00:00)
Even if you’re not convinced that we’re at bottom dead center right now, know prices for condos in Denver have dropped 65 to 75 percent If you buy it it drops 5 % But it’s 70 % off of what the prior peak was you still feel okay. You’re buying it for less than land value You’re getting the building for free and sure enough like you know We had how condos that went from like 110 grand to 30 grand and they were back up to 150 grand within seven years so if you bought it 30 and sold at 150 and you bought like a hundred of those like that’s like a

a life-changing sort of an event.

Scott Bursey (02:01)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host Scott Bursey. And today, if you are looking to understand how capital markets affect your deals and how to build generational wealth, you are in the right place. Our guest is Lon Welsh of Ironton Capital, and he is bringing the high octane fuel we need to navigate complex investment landscapes. Lon is a master at strategy, and this conversation is going to be nothing short of phenomenal.

strap in pros and rev up your engines because Lon is in the house. Lon, welcome to the show.

Lon Welsh (02:35)
Thanks for having me.

Scott Bursey (02:36)
It’s awesome having you here. And for our listeners who may not be familiar with your journey, please tell us, how did your career begin and what is your main focus now?

Lon Welsh (02:45)
Yeah, I worked in corporate finance for a couple years. I went back to business school and then I worked as a strategy consultant for eight years at Deloitte and then Accenture. And then I’ve been in real estate for about 23, 24 years now. I built a large real estate brokerage from scratch called Your Castle Real Estate, which became the largest independent in Colorado with just under 750 agents. Also built a title company. I sold both of those, sold the title company to Compass and I sold the large brokerage to a private equity

Fund, both at the tail end of 2021, right before the interest rates went up. So I got lucky on the timing. And then I started Ironton Capital in June of 22. I’ve been working in parallel to that as a real estate investor throughout.

real estate developer building new projects, redeveloping, doing high value ad projects, doing a lot of fix and flips. And a lot of people said, I’d love to be able to invest with you. And I had enough say that like, well, gosh, I guess I could build a private equity company, gather these people up and help them all invest efficiently. ⁓ And that’s what we did. So we’ve gone from nothing to a little over $100 million that we manage for our clients. ⁓ things are going really well. We’ve got a fantastic team.

Scott Bursey (03:53)
Lon, thank you for sharing that journey. The way you’ve pivoted and grown is a testament to sharp execution on your behalf. What really caught my attention about you, Lon, was the way that you’ve been able to strategically deploy capital scale investment firms and build a truly resilient platform through Ironton Capital.

Lon Welsh (04:14)
Yeah, I think what worked well for us is we’ve got really three products that are so synergistic. We have a short-term income fund that’s extremely liquid, it’s tax advantaged, it only pays like 8 % but you can get the cash back really short notice. So a lot of people who, let’s say they’ve owned a number of commercial properties, they want to have a capex for fund in reserve. They know their elevator is old, they know they’re going to need to replace it, it’s going to be a big ticket item, but they don’t know when the elevator is going to go out. This is a great place to park cash like that because we can get it back

to them exactly when they need it. There’s a medium term income fund that pays between 11 and 13%. That’s our most popular product. Money’s tied up for one year and then it’s liquid and it’s not tied to what the stock market or oil prices or wars or anything else, none of that is affecting it, which is great. So there’s a lot of people who don’t want to be in the real estate market now, but they love real estate and they need somewhere to park the money for like a year or two. This is the safe harbor for them. And then we’ve got a long term fund that’s five or six years higher returns

16, 20 % a year. And so for people who love long-term real estate and they like a lot of diversification, we solve that problem. So they’re very ⁓ self-reinforcing for us, a complete solution for most people.

Scott Bursey (05:24)
If you could walk us through what is Ironton Capital’s single biggest advantage in finding and vetting deals right now.

Lon Welsh (06:17)
So for the long-term fund, it’s really just a function of networking and getting a look at a lot of deals and just really being super patient. ⁓ There’s three of us full-time evaluating, underwriting deals, flying out to go look at them in person. ⁓ I think a lot of people like the idea of being a limited partner in a real estate project, but they may only see one or two deals a year, and they feel like they’ve got to pick one of those two to invest in. So they make a bad decision just because of lack of choice. ⁓

that comes from just getting to do something 50 hours a week for 20 years. It’s just a lot of hours. That’s why I don’t have a lot of hair left. ⁓ So it’s mostly networking and just a lot of that bats. And then we document all of our assumptions and then when the product’s done, we go back and look at, what was right, what was wrong? How could we learn and do a better job next time? And that’s really helped us get better over time.

Scott Bursey (07:09)
If I’m hearing you correctly, the emphasis on deal flow and local market knowledge is everything. If you’re relying on the open market, you’re competing on price and that’s just not a winning strategy.

Lon Welsh (07:14)
Yes.

You know, you occasionally will find something in the MLS or on a public exchange like CoStar, but it’s sort of the exception to the rule. You know, the rule of thumb that I sold commercial real estate at the beginning of my career and what I found is that about half of the listings were sold before they hit the market. You would try to sell them to your own clients as a broker. You’d share it with your buddies in the office. If they couldn’t sell it, you’d share it with the whole office. If that didn’t work, you’d call six other friends and other brokers. And if it still didn’t sell, then you’d put it on the market. So all the good stuff comes

got cherry picked off and it was just a courtesy that everybody else would return that favor to you so you could find things for your clients off market. ⁓ So it’s, know, if this is the stock market, that’s called insider trading, but in real estate, that’s just the standard practice. It’s really awful, but that’s how it works.

Scott Bursey (08:02)
It really is. And that’s spot on. Lon Welsh what is the biggest operational inefficiency you currently see most real estate fund managers dealing with?

Lon Welsh (08:12)
you

Well, it’s certainly true for us and it’s certainly true for every other fund manager I talk to is fundraising in general is a difficult process for everybody at any phase of the market cycle. But raising for the long-term fund right now is particularly challenging because a lot of people have fear. And I saw the same sort of behavior in a prior market cycle. We’ll probably talk about that later in the broadcast. Between 2007 and 2009, there was a huge real estate correction in most parts of America. And then it took investors a while to get back in after that. And we can talk about that whenever you’re ready for that.

That’s definitely a limiting factor for us and everybody else.

Scott Bursey (08:44)
Walk us through that path, if you would, a little deeper.

Lon Welsh (08:48)
Yeah, so I’m old enough now that I’ve been through three pretty good cycles. ⁓ There was the dot com bubble crash in 2001.

In Denver at least which is a very high tech oriented employment city the real estate market was very soft in 2002 and 2003 after the dot-com crash The biggest one for almost all of us is the 2007 to 2009 crash So in Denver we went into the correction before most states and we pulled out of the correction Before anybody else as we started first we came out first. So what was interesting is Brent Geyer who was just a friend of mine at the time it who’s a CP

by training, we did an analysis of all the HOAs for condos in Denver, figured out which were most liquid, which ones were the most in danger, found the best ones statistically, and then we, I personally bought about 140 units in 2009, 10, and 11 at Bottom Dead Center, and he bought a whole bunch as well. Actually, he’s the CEO now of Ironton Capital. We’ve worked together for well over a decade. The challenge I had is expressing to investors. I wrote a book, I did lots and lots of classes showing

Even if you’re not convinced that we’re at bottom dead center right now, know prices for condos in Denver have dropped 65 to 75 percent If you buy it it drops 5 % But it’s 70 % off of what the prior peak was you still feel okay. You’re buying it for less than land value You’re getting the building for free and sure enough like you know We had how condos that went from like 110 grand to 30 grand and they were back up to 150 grand within seven years so if you bought it 30 and sold at 150 and you bought like a hundred of those like that’s like a

a life-changing sort of an event.

People are held back by fear though. Everyone says they’re a contrarian investor until they’ve got to write a check, or when there’s a bloodbath out in the street. That’s the time when you have to find a little courage and go out there and do it. So I think this is an exceptional time right now to be a buyer. In many components of the commercial real estate market, it’s just difficult to get the message out. And that’s okay. Everybody adopts it on a different timetable.

Scott Bursey (10:44)
Listeners, that’s the blueprint right there. Awesome breakdown. And I find your book fascinating. Let’s pivot. Let’s talk about your book for just a bit.

Lon Welsh (11:27)
So I wrote a book, this is my 14th book, it’s on passive real estate investing. So probably a lot of your listeners have been landlords or fix and flippers or both, or maybe they’ve been real estate developers. I’ve done all those things. And you may get to a point where you want to take a couple chips off the table, or maybe you’ve said, you know, I’ve slain enough dragons, I can prove I can do it, I don’t need to go into another war. I’d like to make decent returns and not have all the stress. So if you’re getting to that sort of a phase, we might have some products

that could be a good match for you. Another typical audience is someone who’s about to sell a large rental and they want to do a 1031 exchange to optimize their taxes into a replacement property. We’re a great plan B. If you don’t find a replacement property or if you find it and you get into inspection, you find out, my gosh, there’s a real big problem with this. I don’t want to continue this. Now what? We’re the now what. We’ll solve that problem for them. So the book on passive investing, if you’re new to it, explains what’s a private equity fund, what kind of questions should I ask, what due diligence should

I do? What financial advisors do I need on my team? How do I explain this to my family? How does this interlock in with my stock and bond holdings and the other types of financial assets that I might have? And then what are different structures for holding? Should I use a trust, an LLC? Should I just hold it in my own name or with my spouse? How do I do it? This takes all those questions and provides just very easy to understand language to walk you through. So by the time when you read the book, it’s a quick read. ⁓ You understand all these things. You can move ahead with confidence. And we’ll give a free copy of that to your viewers if they’d like to

have one.

Scott Bursey (12:57)
It’s a quick read and it’s a great read. Lon, let’s go underneath the hood. Beyond the headline news, what overlooked niche or commercial or residential real estate offers the best risk adjusted returns today in your view?

Lon Welsh (13:12)
Wow, you know…

At least in the Denver market, we’re seeing condos being given away, not for the prices that they were in 2010, but short of that, it’s the best opportunity I’ve seen in 25 years to be a condo buyer in our market. I live in Florida part of the year. It’s probably even more an opportunity here right now. And there’s enough sellers that are desperate enough that if you said, want you to do a seller carry, because you’ve got a 3 % mortgage, if you explained it to them the right way, they’d probably say yes. You could probably build a pretty good sized

portfolio of rental condos right now for really good prices at 3 % mortgages with next to nothing down. So for the person who is newer to the industry, doesn’t have a huge war chest, but is reasonably articulate and willing to do a lot of hard work, ⁓ my gosh, this is a great opportunity for that person. ⁓ If you’re more experienced in the saddle and you’ve got a decent war chest, then I would be looking selectively at multifamily. There’s just fear around

around

that and the reality is that the building boom in most markets that created this oversupply situation is now finished and that the forward supply of new capacity coming online over the next 18 months is about 30 % of what it has been in the last 18 months. Meanwhile, household formation has been outstanding. You may not know this, but there is a record number of young adults between 18 and 25 years old living at home and all the parents and all those young adults

want them out. So as soon as they feel confident they can go find their first rental property, they’re going to get out. If we took the number of young adults in that demographic segment and returned them to the historical average, it’s almost 900,000 new renters. So there’s a huge surge of rental demand on the sideline that once these people find jobs, they’re going to absorb lots more units. It’s a good time to be buying multifamily if you’ve got a five-year horizon.

Scott Bursey (15:06)
That is a pure strategic play that requires deep analysis, not just following the herd,

Lon Welsh (15:12)
It’s not what people are saying right now, which means it’s probably the right thing to do.

Scott Bursey (15:15)
What single looming piece of economic news or regulation is posing the largest threat to capital raising over the next 12 months in your eyes?

Lon Welsh (16:05)
my gosh there’s so much like ⁓ volatility in the headlines it’s been sort of non-stop about

pendulum going back and forth about tariffs and then businesses being uncertain about what to do. There’s been non-stop headlines about AI is going to take away your job. There’s been frustration that oil prices have spiked because of the disruption in the Middle East and that’s going to lead to a resurgence of inflation. Those three factors really kind of distill down to the University of Michigan does a study of consumer confidence each month and consumer confidence right now is at very low levels. The conference board is the other consumer confidence study you see

hoarded a lot in the news. They had a little bit of an uptick this month. Michigan was down a little bit, so I think on average it’s probably relatively flat. They ask as a sub score in that survey is, is it a good time to buy or sell a house? And the buy side score is at about a 15 year low right now. So this pessimism on the part of consumers as a result of all the volatility in the headlines is like a big headwind on the residential market, but it’s also a headwind on things like multi-facility

family and for the lower tier consumers that spend less money, it’s a headwind on retail spending as well. I think a lot of these things are going to self-correct most likely over the next 12 months and that cloud will probably lift and it’ll be nice to have that headwind out of the way. That’s a long answer to a short question, I apologize.

Scott Bursey (17:28)
It sounds like we have to be prepared for capital to be harder to access.

Lon Welsh (17:33)
Yes, if you’re a fundraiser, it has been hard for long-term funds for about two years. I think we got another two years of being in the deep freeze and then we’re gonna start to thaw out. So if you’re a fundraiser like we are, I would focus on income funds that are shorter term with more liquidity, build lots of trusted relationships, and when market sentiment changes, which it always does, this is all cyclical, then you already have all those relationships and they’ll just be easy for you to grow onto the next path.

Scott Bursey (17:58)
Curious to know what one lesson from a past real estate cycle is most relevant for pros right now.

Lon Welsh (18:04)
Gosh, from a lesser extent in 01 to a large extent in 07 to 09 and to a little bit lesser extent during the first like six months of COVID, like say April of 2020 to say July of 2020. And then from the third quarter of 2022 onwards, those four different epochs are a couple of different examples of market corrections where market sentiment whipsawed really rapidly about is real estate desirable or not.

So what is hard to do when you’re close to bottom dead center and it’s not yet clear from retrospect that you’ve hit bottom and you’re clearly coming out. At some point you’ve got to lean into the wind and have some confidence. And no one’s asking you to jump off a cliff with a blindfold, but I would say closely monitor your local market and what’s going on and decide for yourself what key indicators would I have to track to want to feel confident to move forward

So at least you’re monitoring that on a monthly or quarterly basis how often you can get it and as soon as you see a change that’s satisfactory to you already have all the rest of your ducks in a row lined up that you can take action immediately because these opportunities don’t last forever and you don’t want to miss out on something ⁓ just because you hadn’t done the adequate prep work.

Scott Bursey (19:18)
That perspective is priceless. Lon, thank you for that clarity. Now it’s time for the money question. Absolutely. This is the one that our listeners ⁓ want to hear the high octane from you.

Lon Welsh (19:23)
Happy to help.

Scott Bursey (19:32)
If a motivated listener right now has, let’s say, $50,000 in liquid capital and 12 months to deploy it, what is the most powerful piece of advice you can give them on where and how to invest it to maximize their return while setting a foundation for long-term scale?

Lon Welsh (19:52)
This is a discussion I have probably two to three times a week because in the course of running the largest brokerage in Colorado for 20 years, I’ve met and worked with hundreds, probably a couple thousand investors. So there’s a lot of fix and flip investors that need to have a war chest of liquidity for a down payment and to fund operations. And a lot of them don’t feel very confident right now with all the reasons we just talked about in doing fix and flips. So they need somewhere to park their cash for a year to two years until they

gain clarity about the market, regain their confidence and want to go back into what their day job is, fixing and flipping houses to empower and better communities. So a liquid sort of an income fund that could pay a great return like our medium term fund pays 11 to 13 percent. It’s got liquidity after a year, not tied to the nonsense of the stock market. That’s for most of our parking their cash. And we expect all of them to pull their cash out in 18 to 24 months and go back to their normal day job. But in the interim, we’re providing a safe harbor for them. They don’t need to worry about

And that’s like a lot of peace of mind that we can provide.

Scott Bursey (20:53)
this conversation has been nothing short of phenomenal. You’ve given our pros so much excellent insight on the world of real estate capital. For those of our listeners who want to follow your journey or collaborate with you, what is the best way for them to reach you?

Lon Welsh (21:07)
Gosh, know, honestly, if you are an intro or intermediate investor you need help, I had a lot of mentors when I was at that stage that were just transformational for me and they spent like 10 or 15 minutes with me and helped me a bunch. I am happy to do that for any of your listeners, so call me. 303-619-0633. Send me a text, tell me where you’re at in the investing journey. We’ll set up a time to talk for 15 minutes and I’ll try to help you out.

I’m a relatively busy person, but I’m not that busy and there’s nothing more valuable for me than being able to give a hand up to someone who’s gonna have like a great 20 year investing career. If I can help you avoid two or three mistakes and get there a little faster, I love doing those calls. So don’t feel like you’re burdening me, you’re not.

Scott Bursey (21:46)
and we can’t let you go quite yet. For our listeners, please give a golden nugget or some advice that would inspire them in their careers as they listen to the show today.

Lon Welsh (22:00)
You know, think the biggest thing is to try to do a lot of networking with like-minded investors. ⁓ If you could find a mastermind group of people who may be working different markets from yours, ⁓ everyone tends to think, well, Denver is different than Pittsburgh is different from Albuquerque, and I can’t learn from the guy in Albuquerque. But the reality is that the DNA of what drives real estate investment is 99 % the same across the entire United States. So if you can find some like-minded people who say, I’ve had that problem, I tried this, I had this result, and it worked for me, or I tried this, and this didn’t work,

So at least you should avoid that. ⁓ Don’t try to figure it out by yourself. Get a team.

Scott Bursey (22:35)
Absolutely. Lon Welsh, everybody. Lon, thank you so much for joining us today.

Lon Welsh (22:41)
Thank you for having me. really appreciate it and enjoy the book.

Scott Bursey (22:43)
And to our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We’ve got a lineup of exceptional guests, just like Lon, who are making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.