In a recent episode of Ritter on Real Estate, host Kent Ritter sat down with Lon Welsh, founder of Ironton Capital, Your Castle Real Estate, and First Alliance Title. With over 20 years of experience in acquisitions, development, and brokerage, Lon has seen thousands of transactions firsthand—and he’s built a framework to help investors make smarter, more resilient decisions.
That framework? The Four Pillars of Diversification.
Let’s break them down.
Pillar 1: Diversifying by Asset Class
Most investors start out in one familiar sector—often multifamily. While multifamily is historically stable, relying solely on it can be risky. Lon explains:
– Multifamily → Steady performer, lower volatility.
– Industrial (mid-sized warehouses) → Growing demand and supply imbalance.
– Hospitality (extended stay budget hotels) → Reliable even in downturns, driven by needs like disaster recovery crews, traveling nurses, or relocations.
Like a stock portfolio, spreading across multiple asset classes reduces exposure to downturns in any one sector.
Pillar 2: Geographic Diversification
Lon once owned 140 units—all in Denver. It worked well…until it didn’t.
Colorado has recently passed more than a dozen landlord-unfriendly laws, showing how politics alone can impact returns. Add in natural disasters like hurricanes or wildfires, and the risk compounds when everything sits in one market.
Ironton Capital’s solution is a blend:
– Midwest → Slow, steady, and low volatility (“singles and doubles”).
– Southeast & Sunbelt → High employment and population growth drive long-term demand.
The takeaway: markets matter just as much as properties.
Pillar 3: Strategy Diversification
There are three main ways to invest in real estate:
- Core Buy-and-Hold – Safe, stable, but lower returns.
- Value-Add – Improve underperforming properties through renovations or better management. Higher risk, but higher upside.
- New Development – Build from scratch where demand outpaces supply. Riskier, but with significant return potential.
Ironton leans toward value-add (for immediate depreciation benefits) and new development (for higher returns in select markets). This mix balances cash flow, tax efficiency, and long-term appreciation.
Pillar 4: Sponsor Diversification
The final—and arguably most important—pillar is who you invest with.
Every sponsor has strengths and blind spots. A fund that relies too heavily on one operator risks inheriting that operator’s weaknesses across the portfolio.
Lon shared a cautionary tale: a partner tried converting extended-stay hotels into apartments. They had experience in value-add, but not with that product type or geography. Their chosen property manager struggled, and because the sponsor was slow to adapt, performance lagged.
The lesson: evaluate not only the sponsor’s track record but also their network—especially property management. Lon compares a good manager to a skilled pilot: most of the time the ride is smooth, but when turbulence hits, you want the best at the controls.
Putting it All Together
The Four Pillars—Asset Class, Geography, Strategy, and Sponsor—work together to create a portfolio that weathers market cycles, politics, and unexpected events.
As Kent summarized in the episode:
“Diversification isn’t just across properties—it’s across strategies, markets, and people. That’s how you create stability and long-term growth.”
For passive investors looking to build wealth without creating a second job for themselves, Lon’s framework provides a clear roadmap.