Barbara Corcoran is celebrated for her intuitive investment choices rather than purely logical ones, and for disregarding standard financial advice, notably by not saving a “dime” of her substantial wealth. However, her achievements suggest she's on the right track, as she's worth about $100 million, and she shared some fundamental principles behind her real estate accomplishments.
TL;DR
- Barbara Corcoran's real estate golden rule: 20% down payment and tenants covering the mortgage.
- She advises against touching investment property money for at least two years to allow growth.
- Breaking even in the first year with tenant rent covering expenses is a positive sign.
- Corcoran's strategy emphasizes patience and letting properties mature for long-term wealth generation.
Corcoran joined the BiggerPockets Real Estate Podcast alongside her son Tom Higgins to detail two strategies she asserts form her “golden rule” for real estate investment: a 20% down payment on an investment property and having occupants cover the mortgage.
This is the method Corcoran herself used when she borrowed $1,000 from her then-boyfriend to launch her real estate career. After failing at 22 jobs, she said goodbye to her waitressing gig and started a “tiny” real estate office in New York. She ended up selling the Corcoran Group to real estate company NRT for $66 million in 2001, launching her into real estate and business investment stardom. She’s been on the main cast of investors on Shark Tank since its 2009 inception, making deals with more than 100 businesses.
The cardinal principle of property investment
Corcoran’s method to real estate investing is tried and true.
“That has always been my golden rule,” she said. “Buy a property with 20% down. [That] has always been my formula because they used to do with 10%, but it’s not possible anymore. I repeated that formula again and again and again, and then making sure the tenant has paid my mortgage. It’s pretty easy that way.”
Opting for a 10% down payment instead of 20% might result in a buyer facing excessively high monthly payments, a precarious decision given that housing costs and mortgage interest rates remain high. A 20% down payment improves the likelihood of a quicker break-even point on a property, leading to faster profit realization.
While that golden rule has worked for Corcoran, other real estate investors warn a one-size-fits-all rule doesn’t always match market conditions.
“Each investment protocol is entirely unique and different,” Alex Blackwood, CEO and cofounder of real estate investment platform Mogul Club, told Coins2Day. “For instance, maybe an investor’s credit score is better so they can take out more with less monthly costs, or maybe interest rates are lower so an investor can increase leverage and still break even.”
Breaking even in real estate
Corcoran mentioned on the podcast that despite her extensive experience in real estate investment, she doesn't anticipate profiting from her acquisitions in the initial one to two years of ownership. However, she considers achieving breakeven status early, where a tenant's rent covers the mortgage and other recurring expenses, a positive sign for the property's future performance.
“If I break even, I’m smiling all the way to the bank,” she said. “And then by the second year, third year, New York is a magical place. The value always goes up, and then I start getting a lot of cash. Then I refinance, pull a lot of cash out, refinance, pull cash out. Real estate is magical if done right.”
Blackwood concurs that achieving break-even in the first year allows investors to start seeing profits in the second. He notes that while investors might experience a temporary setback on a longer-term venture, profitability is realized when they have the ability to increase rental rates.
The “breaking even” golden rule also ties directly to one of real estate’s “underlying principles,” the first of which is leverage, Ian Formigle, former chief investment officer at commercial real estate investing platform CrowdStreet (now a partner at Green Light Development), told Coins2Day.
“Borrowing money to acquire real estate can dramatically amplify the returns to investors, but it can also amplify the risk,” he said. By adhering to Corcoran’s golden rule and getting tenants to cover costs, “you mitigate the leverage risk by generating monthly income through the property. You can also create an opportunity to generate wealth through asset appreciation because well-located real estate can attract more attention and investment over time.”
However, effective real estate investment requires patience. On the podcast, Corcoran recounted purchasing a property with her 20% down payment strategy, ultimately holding onto it for two decades before selling. She initially acquired the property for $1 million, then sold it for $3.2 million twenty years later.
Even though this process takes time, Corcoran warns against taking money out of investment properties too soon.
“You cripple your business if you start taking money out,” she said. “You want to see how long you can go without touching a dime. That’s what I did.” To make money when she was first getting her start in real estate investing, Corcoran ran her brokerage firm.
“I made good money from that,” she added. “But [as for] my buildings, I never looked to it for money until they matured a little bit, and then I started getting a lot of cash out.”
A version of this story appeared on Coins2Day.com on December 5, 2023.
Further insights into property investment:
- Buying an investment property: What you should know to get started
- Nearly 70% of Americans think the economy is on the ‘wrong track’ and even more think it’s a bad time to buy a home, Fannie Mae survey shows
- Millennials and Gen Zers are clamoring to break into the housing market. But this real estate expert says ‘not everyone should be an owner’