What Is the ‘Golden Rule’ of Real Estate Investing?
Corcoran’s Golden Rule of real estate investing comprises two essential principles. Firstly, it involves acquiring a property with a minimum down payment of 20%, preferably in a location experiencing a rise in demand. Secondly, the rule emphasizes having tenants on the property who contribute to covering the mortgage.
Corcoran asserts that if you can secure a property with a 20% down payment, break even, and have tenants covering the mortgage, you are guaranteed to generate profits. Additionally, hitching onto the growth of an emerging area can further amplify the potential returns.
However, it’s crucial to note that, much like the evolving real estate market, Corcoran has adjusted her strategy over time. Initially, she advocated for a 10% down payment when purchasing homes. Yet, in response to escalating housing prices and interest rates, she opted to increase the down payment percentage as a strategic adjustment.
It’s OK To Break Even at First in Real Estate Investing
During the podcast, Greene inquired whether the objective in real estate investing was to merely break even or to establish an income-generating property. Corcoran, in alignment with her Golden Rule, emphasized the importance of initially breaking even, highlighting that this is typically achievable by making a minimum 20% down payment on a property.
Corcoran cited numerous instances where she adhered to her rule, initially breaking even before realizing profits. She explained that breaking even in the initial year or so of real estate investing is standard practice. Over time, as property values appreciate and mortgage balances decrease, substantial returns become feasible.
Illustrating this, she shared an example of making a 20% down payment on a property and waiting for two decades before selling it for a substantial profit.
By consistently applying the strategy of putting 20% down, maintaining ownership, securing paying tenants, and eventually selling, Corcoran has achieved considerable success in real estate. Currently boasting an estimated net worth of approximately $100 million, she stands as a testament to the efficacy of her approach.
There’s a Difference Between Residential and Commercial Tenants
Corcoran emphasizes distinctions between residential and commercial tenants, underscoring that they are not interchangeable. Residential tenants typically perceive the rented space as a more personal living arrangement, while commercial tenants are inclined to vacate when they deem the property is no longer a viable investment for their business.
Furthermore, the process of increasing rent on residential properties is generally more straightforward compared to commercial properties. This holds true both when a current residential tenant departs and during lease renewals. The ability to implement rent hikes on residential properties can result in more significant gains over time. In contrast, commercial leases tend to have longer durations, requiring more time before rent adjustments can be made.
What Prompted Corcoran’s ‘Golden Rule’?
Corcoran’s journey to becoming a real estate mogul had humble beginnings. In 1973, armed with only $1,000 and overseeing seven real estate agents, she embarked on her entrepreneurial path.
A pivotal moment in her early career was the acquisition of office space in Fort Greene, a relatively obscure neighborhood in Brooklyn, New York, at the time. Corcoran’s foresight and investment in this area preceded its recognition as a promising location by other brokers, who later followed suit in purchasing properties in the neighborhood.
Following her success in Fort Greene, Corcoran extended her ventures to different neighborhoods. Notably, she invested in a townhouse on Lafayette Street, featuring a commercial space and six apartment units above it.
Throughout her expansion, Corcoran strategically targeted up-and-coming neighborhoods, prioritized securing paying tenants, and ensured a substantial down payment to break even—a formula that eventually crystallized into her Golden Rule of real estate investing.
Should Other Real Estate Investors Follow the Golden Rule?
According to Corcoran, the essence of real estate investing lies in achieving a break-even point by making a minimum 20% down payment and securing consistent, long-term tenants who cover mortgage and maintenance expenses. The strategy involves refraining from selling or refinancing until the property has appreciated sufficiently in value.
Corcoran extends this advice to novice real estate investors, recommending a similar approach. She suggests initiating the journey by acquiring property with a substantial down payment and exercising patience before extracting any funds. The eventual profitability comes when the property has matured, allowing for a lucrative sale.
