I’m excited to kick off a new series today that focuses on passive real estate investing as a strategy for strengthening and diversifying your portfolio. Last year, I made my first passive investment: I wrote a check, and that was it. With that simple action, I added diversification to my portfolio and realized that this is a key concept for other real estate investors to understand.
To help me explain this topic in-depth and discuss other investing strategies, I’m joined by Lon Welsh. Lon is the founder of Your Castle Real Estate, and has a 20-year career in real estate investing himself. His newest venture is Ironton Capital, a real estate investment company that helps people passively invest.
- Listen to the podcast “#387: Why Lon Welsh Is Going All In on Passive Investing” Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Who Is Lon Welsh?
Lon got his start in corporate finance, went back to business school, and then worked as a strategy consultant for eight years with Deloitte and Accenture. While at Accenture, he got interested in real estate investing and bought a couple of properties.
In 2002, the NASDAQ crashed and the tech companies he was working with went bankrupt. Subsequently, everyone got fired within the next year. He asked his wife if he could get into real estate investing full time, and she thought it was a great idea, since it meant he wouldn’t have to travel anymore.
Since 2003, he’s been fully committed to real estate.
Real Estate Companies
After successfully investing in a variety of properties, Lon turned his attention to real estate-related businesses. He founded Your Castle Real Estate brokerage in 2006, which is now the largest independent brokerage in Colorado, with just under 800 agents. He sold that company to a private equity firm with a great team last December, though he remains in his CEO position there.
About 10 years ago, he and Greg Parham founded First Alliance Title, which they sold to Compass last fall.
Real Estate Investing
Lon has extensive experience investing in real estate. His first investment was a rental condo in Vail. After that, he bought a 9-unit rental building in the Capitol Hill neighborhood in Denver. He then bought 4 units next to the School of Mines, which he turned into condos and sold.
He’s enjoyed buying apartment buildings at a discount and then renovating them. This allowed him to put in new tenants at a higher lease rate, refinance to pull out money, and then buy the next asset.
After the housing market crash of 2007, he did an analysis of all segments of the real estate market and found that condos and townhomes had fallen more than anything else. When they hit rock bottom, he bought about 80 of these types of properties for 30 cents on the dollar.
More recently, he’s been selling off rental properties and buying office spaces. He’s following a similar strategy as buying the condos and townhomes at a discount. For example, an office building he purchased for $1.7MM and renovated for $1.4MM…is now on the market for $5.6MM.
In addition to buying real estate, he also built 32 houses and townhouses. Overall, in twenty years as an active investor, his average annual total return has been over 20% per year.
Shifting to Passive Investments
In the past couple of years, Lon started shifting to more passive real estate investments. Like other investors, he grappled with the rising prices in the Denver housing market. He started looking nationally in order to diversify geographically and across different asset classes: self-storage, student housing, hospitality, and warehouses. He spent two years studying the market until he felt he knew enough, and has made 35 national investments since 2019, contributing to a fund while others did the heavy lifting.
Lon thinks of his investments as four different investment funds of eight projects each. Now that he’s had enough time to get results, three of the investments have closed and realized those results, two are under contract and the three four are still in process. The first fund is on track to have a return of 19%-21% per year. Funds 2, 3 and 4 are in the 15-19% range.
What Are the Benefits of Passive Investing?
Lon sees the biggest advantage of passive real estate investing as being able to diversify across greater geography. Another is getting exposure to multiple asset classes (e.g. multifamily, industrial, hospitality, student housing). But there are other benefits, too, namely time savings and strong returns, typically around 15-20%. Moreover, active investors sign their own bank loan, while passive investors aren’t the ones guaranteeing the loan. As we seem to be heading into a recession, this may be a source of comfort for passive investors.
Why Is Ironton Capital a Great Choice for Passive Investors?
Over the past 20 years, Lon has demonstrated his ability to understand and thrive as a real estate investor and business owner. He’s written four books on active investing, and taught countless classes.
At Ironton Capital, Lon does all the work of selecting the projects, and flies out to see many in person. He’s made mistakes with development projects in the past, and that’s taught him what to ask and how to eliminate them in the future.
In the coming weeks and months, Lon is going to be hosting more webinars to teach people about the funds, the pros and cons of passive investing, and explaining the risks in more detail.
Want to Learn More About Passive Investing?
Join Lon Welsh and Chris Lopez in their first live webinar about the benefits of passive investing, achieving diversification, and how to get started.