How $100M in Private Funds Is Navigating Today’s Economy

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Good morning and welcome, Wicked Smart listeners. It's Chris Pree, your host again for another Wicked Smart Masters Class. I'm going to hang out today with Lon Welsh, and let me tell you why I wanted Lon on. Usually I say to you my standard, hey, they got, you know, 20, 30 years experience and we work with them. And, you know, you've heard the story, right? A little different here. Lon Welsh is not someone I've worked with, disclosure, but he's the founder of Iron Chin Capital and he has more than 20 years expertise in commercial real estate acquisition and development. And he serves as the founder and CEO of Your Castle Real Estate. It's a large Colorado brokerage, and that's not his active focus. It's not what we're going to talk about today in the show, but that brings such a high level of statistics and trends and things like that. So what's really cool is he has some private funds that he runs that are accessible to a lot of you. The Wicked Smart listeners. And I thought it was really cool if we talk stats in the industry, stats about where the economy's going, how AI's affecting it. Because if you're listening to the media right now, you're all screwed up, frankly. And if you're a media junkie, sorry to tell you that, but I want you to hear it from the source. And he's actually gonna start providing the Wicked Smart community a quarterly update just for cool content and direction, if you will. Okay, Lon, with that as a backdrop, welcome to the show.

Thank you for having me. I appreciate it.

Yeah, you bet.

All the way from Denver, Colorado, right?

Yes, that's right.

Good stuff. So you're getting a little cold, colder weather before we do, probably.

Yeah, I'm excited for it. Ski season's coming.

I bet the change is good. Lon, I wanted to jump in sort of 10,000-foot view first, right? And then we can, we can start peeling some things back. I threw some questions down here. So with all the sort of buzz and media hubbub with interest rates and economic comments, talk about what you've seen for changes, you know, over the last several years, and then we'll talk about going forward.

More from the residential side or the multifamily side?

Let's hit both if you'd like, but whatever you'd like to focus on, I'm okay. Good question. I'm okay with both.

Yeah, I'll do both for you. So on the residential side, things have been a lot slower. in general across the US, but it's been much more of a slowdown in the western part of the US and the southeastern states. The Midwest and the Northeast has done better. The reason for that is the inventories of houses for sale have really spiked on the West and Southeast, and since there's too many houses and not enough buyers, prices have been flat to slightly down and the marketing times are going up. We haven't seen that inventory build in the Northeast and the Midwest. The price appreciation's been a little stronger. It's a little faster to sell a house in markets like that. On the multifamily side, prices for multifamily peaked in 2022 and they're off about 20% from the high. So if you compare that back down to 2007, last time we had a big correction in commercial, prices dropped about 30%. So this correction hasn't been as severe on the multifamily side, and I think we're past the bottom at this point. The last 3 quarters have been kind of flat.

Interesting. Let's talk a touch about, and I think this will open up other things, have you compare a little bit if you can, sort of the private investor, you know, out there doing their own thing versus the fund route, if you will, which is where your expertise is. I'd love to just get like 10,000-foot view on that and see where that brings us.

Yeah, we manage about $98 million for clients and what we're finding over the last 2 years is that it's a lot easier for us to raise money for private credit. So those investments pay a quarterly dividend. They're relatively liquid. There's not a lot of volatility. That's very in demand with the investors right now. Our private equity offerings where we're building new apartment complexes or new warehouses, it's like a 5-year commitment, much higher returns, but no liquidity. Not nearly as much interest across the marketplace with that right now. I think that'll probably continue to be the case for a while. I think the root cause is if you look at consumer sentiment as measured by the University of Michigan, Consumer sentiment's like at a very negative level right now. It's about the worst it's been in the last decade. So until we start to see that pick up a bit, I don't know if people are going to want to go for the long haul. They're going to want to stay liquid and stay, they're not sure. They don't want to take risk.

So I was kidding earlier saying about the media, but so when you talk about the sentiment being so low in a decade, because I haven't heard that stat, that's interesting. What do you, I mean, in your opinion, what do you think's driving some of that? Because A lot of it's media-driven, I think, but I'd like to get your thoughts. That's why I'm kind of chuckling here.

I think there's a lot of factors to it. So I think the uncertainty about the tariffs, there's a concern that that might drive inflation and that wages may not be able to keep up. We've seen the last couple job creation reports be pretty anemic. And if you ask Americans, do you think there'll be a recession in the next year? 2/3 of them say yes, even though economists less than a third of economists think it's going to happen. Most Americans think we're going to have a recession. So I think it's probably the confluence of those factors that's leading people to feel like, I want to be conservative and not take a lot of risk right now. Additionally, the white-collar jobs of people who are college-educated historically have done the best for employment, the best for wage growth, and those are probably the most being threatened by the changes in AI. It's definitely more difficult for a first-time college grad to find a job now than it was, say, 3 years ago. And AI is what's being blamed for that. Is that true or not? I don't know, but that's the conventional wisdom on the street.

So time will tell, right? With the—

Time will tell.

Yeah.

Right.

I just think this is super interesting and that's why I wanted to have you on because it's just more of a, I guess, a macro view than the Ottawa guest. So I appreciate it. So, all right. So given all these things we're talking about and all these kind of needles right now in the mix of things, talk about how Arrington Capital's short-term and medium-term income funds are designed to kind of navigate this. If I'm asking that in the right format.

Yeah, our short-term fund, our partner is a hard money lender. So it's a bunch of former commercial bankers who use the same underwriting rigor, and it's a portfolio of about just under 300 loans. So investors in that get a tiny slice of each of those loans, pays between 8% and 9%. You get quarterly dividends and it's extremely liquid. It's also got a favorable tax treatment as a REIT, a real estate investment trust. So for a lot of your listeners, That's a more favorable way to pay your taxes than ordinary income would be. So that market segment's doing fantastic. The medium-term income fund is actually in medical receivables. So if you've got a clinic or a hospital that's got a bunch of small medical claims, our co-GP takes over the paperwork administration process to get paid, and they give the hospital about 30% of the value of the receivable today in cash, and we just take it over. So really what the hospital's buying from us is Getting rid of a lot of the paperwork and getting the financing is like a side benefit. There's plenty of people out there who'll do what's called factoring, when you give an advance against a receivable, but they pick us because we've got that defendable process. That pays between 11% and 13%. No liquidity for the first year, but it's liquid after that. What I love about this is that it's not tied to interest rates or the stock market or the real estate market because healthcare happens regardless. of what the macroeconomy is doing.

You mentioned the listeners. So interesting. 2 questions. One, who do you find to be your best avatar, right? Like, so they know if they're listening. And in that mix, do you find that they are all passive? Like, hey, that's why I want this. I kind of want my passive income. Or do you find some people that are active maybe in our world and also putting some money over there to have a nice Nice little variety, a nice mix.

Yeah, it was a couple different avatars that we tend to see. So we've got some people that are active investors, they're active landlords, but rather than taking an additional unit of cash they have right now to buy yet another rental, it's very difficult, at least in the Denver market, to buy a rental now and get it to cash flow unless you put a huge percent down, and even then your return is very anemic. So here that landlord might choose to invest with us instead and say, I want a 12% return on investment that's liquid and safe. Another common avatar is someone who's a busy professional who's got all of their savings at Vanguard in stocks and bonds, and they want to be in a different asset class, and we could provide some diversification to their portfolio and a really high return at the same time. So that tends to be the 2 most common people that we find. A smaller set are the people like me that own a bunch of commercial properties, and I've got a lot of money saved up because I know I've got to eventually replace a roof, eventually replace a boiler, But I don't know when. So parking it at the short-term fund is great because I can make 9% instead of nothing at the local bank. And whenever I do finally have to replace that boiler, I can get access to it very quickly. So it's very good for commercial owners like that.

And do you care where— I shouldn't say do you care. Are investors restricted geographically in any shape, form, or fashion, or anywhere in the US can invest with you, right?

Anywhere in the US.

Okay.

How about if they're listening, minimum size investments?

Just $50,000 to get started.

Okay, so it's not obnoxious.

That's not that bad.

Okay. Retention-wise, and that might not be the right word for your business, but are people staying with you long-term with these investments? What do you see?

Yeah, usually what happens with the 2 income funds is people start with $50,000 or $100,000 and then they get 2 or 3 quarterly distributions. They feel comfortable. Yep, the process works just like they told me it's going to work. Then they send another $100,000 And they send over a friend. So we have very few people who take cash out just because they like the returns. The really, the big exception to that is like we work with a handful of real estate developers. They'll raise a lot of money upfront and they'll need some of it to buy the land, but then they've got like this 15-month incubation period while they're getting engineering done and building plans and getting their permits issued. They'll park the money with us during that time period, and when they finally get the permits they need to like start, then they take the cash out and get going. But we love working with developers. They're, they're a great client set as well.

Yeah. As you were saying, I'm thinking there's a boatload of people, maybe not at a huge level, but a boatload of people that sit on that instead of—

Yeah.

That's pretty cool.

Yeah. Though having at the bank making 1%, you can make 9%.

Okay.

Who wants to be the next apprentice? Pretty interesting, guys. We started this apprentice program back as a July 4th, 2024 promo. That's where it started. And it was so incredibly effective. We were just going to run it for the summer. It was so effective immediately we kept it. It's in place now. And what is it? It allows you to get into the community, the Wicked Smart community, for less dollars than the QLS home study course sells for right now on our site. In fact, when you go to smartrealestatecoach.com/apprentice-pod, apprentice-pod, when you go there, you're going to see that as an apprentice, you're going to get over 13 $1,000 worth of coaching, the possibility for you to touch base with us if you want to, 4 or 5 times a week. And it doesn't exist anywhere out there, frankly. That's why we did it. We did it for 2 reasons. One, no one is giving you the support out there. We keep hearing feedback, which is how this was born, that other educators are not giving support. They're just selling stuff. So it doesn't exist anywhere and nowhere in the real estate education or coaching space. And we want to help you do one thing. Deals. So we've wrapped the support mechanism around this. We've allowed you to get into a Slack community with the other associates who previously were protected in Slack, and now you get to jump in there and experience that for 12 weeks. You also get to come to the In the Trenches boot camp, which is private. It's a chance to hang out with the family team and one of the coaches for 2 and a quarter days in our conference room, roll up his sleeves, Get calls done, get deals done. If you come with leads, you leave with deals. Absolutely incredible. I could go on and on. Go to the website right now, check out more information about the Apprentice, and I'm going to give you the In the Trenches Boot Camp site because you don't have to become an Apprentice. It just happens to be free with Apprentice and Associate. So 2 links I'm going to give you, super important. smartrealestatecoach.com/ittb-pod. That's going to give you some information about the boot camp. If you want to buy a ticket to the boot camp, it's more expensive, but you can just come check us out. About 1 or 2 people every time we run it do just that or become an apprentice and it's for free. SmartRealEstateCoach.com/apprentice-pod.

Talk about— so I don't forget about it— your National Diversified Fund. Just again, for— they have exposure to what you do and I'll make sure they know how to get you, obviously, at the end of this.

Oh, absolutely. So we tried to get a pool of about 30 different commercial properties, ideally across about 10 different states. Strategy-wise, about half will be new construction and half will be heavy value adds. We'll buy a beat-up asset at a discount, renovate the units, and raise the rents. I really like being in a situation where if all my competitors are $400 a month higher than me, and if we look terrible, if I do the renovation, I know I'm going to raise the rents up. I can control my destiny as opposed to being reliant on Washington to do something special for me. Most of it's in multifamily, but we do a little bit of industrial and hospitality as well. So the goal there is about a 5-year hold period, around a 17% per year return.

Nice. And again, so I don't forget, I'm scribbling. You see me looking down, scribbling as you go. You mentioned AI and we both say, well, who knows what's going to happen? Talk about how it's affecting, not affecting, how it's helping maybe you guys with different analytics and things like that. Are you jumping all over that yet or is it still kind of the jury's out on that?

Yeah. So 2 books back, I wrote a book on passive real estate investing, which I'd like to make a copy of that available to all of your listeners for free. I can give you that URL a little bit later, but AI helped me a lot with the research and drafting of that book. And then I'm working on book number 14 right now. We're doing a book about 1031 exchanges, how the new tax laws that just passed impact that tax strategy, and then 6 alternatives to a 1031 exchange if you feel like it's not right for you. And then how do you decide? So I think that's going to be really useful. We're about a month out from that, but a lot of research from that book also came from AI.

So you've been cranking out books for how long now?

That's almost 20 years. Yeah.

Yeah. If you're on 14, you got me beat by a long shot. Let's talk about alternatives. Like, what are you looking at? What do you do on a daily basis as far as looking at trends? Because this, I mean, in my brain, I get, it gets boggled because there's so much stuff going on. What trends are you watching closely versus, okay, I'll pass them watch this. Is there such a thing that you can identify for us?

Yeah. So I used to own a very large real estate brokerage here in Colorado. So I've done sort of Colorado-based real estate trends for almost 20 years and giving presentations once a quarter on that. So when I started Ironton Capital Lab about 3 and a half years ago, I started putting together a national real estate trends package where we talk about the economic drivers overall, and then what does it mean for real estate investors nationally? And then how does it break out? Like earlier we were talking about how the Northeast is doing differently than say the West. It's really important that you understand it so you know where to invest and where to avoid. So I do a quarterly presentation on national real estate trends. So it takes me a couple days a quarter to update that, and then I deliver that. I could deliver it to your audience if you wanted me to.

That's neat. I appreciate all that. And we'll make sure— I want to get them all the links so they can connect with you, but also get their hands on some of this really cool data. So beyond 25 and beyond your expertise, what should they be looking at? Because you get a lot of solopreneurs, you do have a lot of people that want passive investment. That's why I asked that. But just for everybody, maybe a broad stroke, what should they be looking at going forward in '25? And what do you see?

Past from far, I should say. Yeah, so I've been doing this for a couple decades now, so I've been through a couple market cycles and each phase of the market cycle's going to have a different strategy that really works well. And you just want to listen to the market and not fight it. So at some phases of the market cycle, being an active landlord is going to get you a better return than passive. So if you've got the time and the inclination, you'll do better than I can do for you. At other phases of the cycle, I might be able to do better than you can. So if you're in a situation where you're not sure, shoot an email to me, we'll schedule a time to talk, and I can help you review your investment and help you decide which of the options is the best for you and your family. But it'll depend a lot on what your goals are and where you are geographically.

Well, I love your candor, Lon, because as you know, not everybody in the industry would say that, right? You're going to be honest and go, here's what you have, but based on that, you can go do your thing over here. So I appreciate that. Yeah. All right, let's hit some things that I didn't ask you, right? Because your brain is on a different note than mine on this stuff. What didn't I ask you that you think is pertinent for the Wicked Smart listeners as they journey through this chaos right now?

Well, from an underwriting standpoint, I wouldn't bank on interest rates getting a whole lot lower than they are right now. Historically, when we have had a recession, mortgage rates will drop between a half and a point. We've seen rates drop actually a fair bit just over the last 6 weeks. You might see another quarter point or a 3/8 yet to go, but I wouldn't bank on much more than that. From an appreciation standpoint, I think most of the West and Southeast is going to be relatively flat for a couple years. I think you'll see 3 to 5% appreciation in the Midwest and the Northeast. Those are probably the big factors I hear about the most. If you own multifamily or thinking about it, You should see that vacancy rates are going to start going down and that rent growth is going to come back probably in 6 months if it hasn't already for your marketplace. The reason for that, there's a lot less new construction that's coming to market that's got to get filled. There's not much new construction in the pipeline. Meanwhile, it's very difficult for first-time buyers to afford to buy a house. And if you can't afford to buy a house, that means you're going to be a renter for longer. That's good for me as a landlord. So There's a lot of good tailwinds pushing the landlord market right now.

Yeah. So it sounds like into '26, cool timing for that.

Oh yeah, absolutely. It's a great time to be a buyer on the multifamily side.

Yeah. Love it. Love the concept. I love the insight. All right, so tell these guys how to reach you, Lon. You mentioned email, you mentioned a free gift. So let's hit a few of those if you could please, and then we'll make sure they're in the show notes.

Absolutely. So you can go to Ironton Capital. Ironcapital.com. And if you go forward slash smartrecoach, you can get a link to download a free copy of our book on passive real estate investing. And then you can email me at lonwelsh, W-E-L-S-H, not like the jelly, at ironcapital.com. And if you've got a rental property, you're trying to decide, is it the best thing for my family to hold onto this, or should I sell it and do something else? I can do that analysis for you very easily. So I'll just send you a list. Here's like 7 data points I need. We'll schedule time to talk about it, and then you'll have all the facts your family needs to make a great financial decision.

Really cool. Really cool. I know alternative investments, like Tony Robbins' book, he put, well, he put 4, 3 or 4 of them out, but a lot of buzz on alternative investments. What do you see for trends there other than A couple things you hit. Anything else?

Well, I think the big challenge for the most attractive alternative investments is a lot of times they've got these enormous minimums of like $500,000 to $1 million, which is just not, it's just not practical for someone who's got like a $3 million net worth. That's a very successful person, but they're not going to put $500,000 of $3 million into a fund. So that's a lot of what we do is that we aggregate about 100 investors together and we'll make investments in the half million to $1 million sort of size so you can get access to institutional-grade products that you couldn't get on your own. So I think these sorts of things are going to become more and more common over time. The challenge is how do we get it available to a retail investor?

Wasn't that even a lot harder, say, I don't know, let's just say a decade ago, or was it impossible?

I think so.

Yeah.

Or has it just popped? Yeah, there was something in a tax bill called the JOBS Act. I think it was about 12 years ago now. that made it a lot easier for me and people like me to be able to do offerings to accredited investors to bring products like this. Before that, it was mostly for pension funds and university endowments and multi-billion-dollar organizations. It wasn't for people like us.

Yeah. Awesome, awesome, awesome. Lon, anything you want to share as we wrap up? And I appreciate the candor and the moral and ethical standards, it sounds like right through the roof, and the insight as far as where the market's going because I don't, I don't get much of that on our show and I really appreciate it. Anything you want to share as we wrap up?

No, just don't panic. The media tends to be awfully negative. The saying is, if it bleeds, it leads. And the media's also kind of trained us all to just think in 30-second soundbites. And a lot of concepts in real estate take more than 30 seconds to really understand. So thanks for tuning in for 15, 20 minutes with us to kind of get it like a deeper dive and really get some meat out of it.

Yeah.

And to your point, let me put a big exclamation on the media thing because I started like that, but You guys can Google it. I won't give you stats, but the stats are astronomical of how much ratings go up with their negative news versus positive. So that's what they just—

Exactly.

So turn it off and just call Lon. All right, Lon, I appreciate you, buddy. Have a great week and thanks for sharing. Appreciate it.

Have a great day. Thank you.

Okay, Wicked Smart listeners, that wraps up our time together today with Lon. And please, if it touched you on any level, you got a nugget at any level, please rate And review, and then share the episode with someone. There's someone in your center of influence who could benefit from some of Lon's knowledge. He's absolutely a warehouse of knowledge. I will tell you, because we're sitting on the 3rd week in October, if you want to hang out with us a little bit more, you want to kind of keep your finger on the pulse of trends, you want to keep your finger on the pulse of AI and how it interacts in our creative real estate world, you want to keep your finger on the pulse of getting 3 payday deals, join us at the last In the Treasures Bootcamp for 2025. That's on November 3rd, 4th, and 5th, right here in my office. This is not a big event, guys, where you're going to come in and there's a stage and all this hubbub. This is in our office, in our conference room with a small handful of people where we make calls to leads, live sellers. If you bring yours, we're calling yours for you. You will leave with appointments and sometimes deals. That's pretty cool when you look at the size of our 3 payday deals. Just go to smartrealestatecoach.com. We'll see you next week on the next Wicked Smart Workshop. Hey guys, are you simply sick of juggling a dozen different software tools for your real estate business? I know I was, and I know I'm not a tech person, so it was frustrating. A subscription for this, you got a subscription for that, and they don't even work together out of the box. That's very frustrating, especially in the real estate world where your best time spent is going to be out in the field or on the phone with sellers. And now you're stuck hiring a tech guru just to make all that sync up. So let's ditch the chaos and let REI BlackBook handle everything.

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All right. Thanks for tuning in to the Smart Real Estate Coach Podcast. If you got value from today's episode, guys, be sure to subscribe so you never miss a future episode. It literally takes one nugget to access some of the things we're doing. And when you're talking the amount of the size rather of the paydays, it's an opportunity cost that you can't let go. So don't miss an episode. And for goodness' sake, share it with someone who needs to hear it. If you're ready to find your best path for getting started on your real estate investing journey in general, head over to smartrealestatecoach.com/getstarted. We're going to help you take the guesswork out of your next steps. See you in the next episode.