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Famed real estate investor and Corcoran Group founder Barbara Corcoran says sticking to her own “golden rule” of real estate investing has helped her earn millions of dollars in the real estate market.
The “Shark Tank” star recently went on the “BiggerPockets” podcast where she broke down her two-part system for investing in real estate that she says helped earn her a net worth of $100 million.
The golden rule
Corcoran’s “golden rule” is made up of two key components. The first is being able to purchase properties with at least 20 percent down, ideally in an up-and-coming area that is seeing demand increase. The second is to have tenants at that property paying your mortgage, according to Corcoran.
“If you can buy a property with 20 percent down, you break even, you get the tenants to pay your mortgage, you always make money,” Corcoran said. “And if you can saddle onto the back of an up-and-coming area, you’ll make a lot of money.”
But similar to the real estate market itself, Corcoran’s golden rule has changed over time. She initially allowed herself to put down payments of just 10 percent when purchasing a property, but as housing prices and interest rates have increased, she has increased her down payment percentage to compensate.
Aim to break even
Corcoran was asked by podcast host David Greene whether the goal in property investment should be just to break even or to have an income-producing property. Corcoran said it’s important to start out by breaking even, which she says can only be achieved by putting down 20 percent initially.
Breaking even in the first year or so of property investment is normal, but as property values rise and mortgage rates decrease over time, investors can begin to see some returns, she said. Corcoran cited as an example a property she purchased with a 20 percent down payment, then waited 20 years before selling it at a true profit.
Not all tenants are created equal
For Corcoran, residential tenants hold more value than commercial tenants. While residential tenants tend to rent their homes for extended periods of time, commercial tenants see the space they are renting as little more than an investment and will leave as soon as they feel it is no longer a worthwhile expense for them.
Residential leases are also shorter than commercial leases, Corcoran noted, meaning it is easier to increase rents once leases end.
