Barbara Corcoran, a prominent real estate investor and businesswoman, has achieved remarkable success with her unique “Golden Rule” investment strategy. Contrary to the typical advice of diversifying portfolios, Corcoran has put all her eggs in one basket – her real estate brokerage firm, The Corcoran Group. This strategy has not only earned her millions but also established her as a leading figure in the industry.
The Core of Corcoran’s Golden Rule
At the heart of Corcoran’s real estate investing philosophy is her “Golden Rule.” It consists of two key principles. The first involves acquiring properties with at least a 20% down payment in high-demand locales. The second ensures these properties house tenants who can afford the mortgage payments. “If you can buy a property with 20% down, you break even, you get the tenants to pay your mortgage, you always make money,” Corcoran explains. Moreover, investing in up-and-coming areas can significantly amplify profits.
Adapting to Market Changes
Corcoran’s strategy has evolved with the market. Initially, she started by putting down only 10% on properties. However, as housing prices and interest rates climbed, she adjusted her approach, increasing the down payment to 20% to maintain profitability.
The Importance of Breaking Even
Contrary to the goal of immediate profit-making, Corcoran emphasizes the importance of initially breaking even in real estate investments. This approach is viable when at least 20% is put down on a property. Corcoran herself followed this rule, often breaking even in the first year before realizing substantial profits as property values increased and mortgage balances decreased over time. An example she cites is a property where she made a 20% down payment and waited 20 years to sell it for a significant profit.
Net Worth and Investment Success
Through diligently applying her rule of putting 20% down, holding onto properties with paying tenants, and selling at the right time, Corcoran has accumulated an impressive net worth of around $100 million.
Residential vs. Commercial Tenants
Corcoran highlights a crucial distinction between residential and commercial tenants. Residential tenants often view their rental as a personal home, while commercial tenants are more likely to leave if the location ceases to be advantageous for their business. Moreover, it is generally easier to increase rent in residential properties, leading to greater gains over time.
The Genesis of the Golden Rule
Corcoran’s journey to becoming a real estate mogul began modestly in 1973 with just $1,000 and seven real estate agents. Her initial significant investment was in an office space in Fort Greene, Brooklyn, an area not yet popular among investors. This foresight paid off, as the neighborhood later became a hotbed for real estate investment. Her strategy of targeting up-and-coming neighborhoods, ensuring paying tenants, and making substantial down payments laid the foundation for her “Golden Rule.”
A Blueprint for Aspiring Investors
Corcoran’s advice for newcomers in real estate is to emulate her approach. Start with a substantial down payment, secure long-term paying tenants to cover costs, and wait for the property’s value to increase sufficiently before selling or refinancing for a profit. This method, while requiring patience and a significant initial investment, has the potential to yield substantial long-term returns. Her success story serves as a model and inspiration for aspiring real estate investors.
