BiggerPockets Real Estate Podcast - 842: Why Barbara Corcoran’s Son, Tom Higgins, Went Against Her Investing Advice

Episode Date: November 9, 2023

You’ve seen Barbara Corcoran on Shark Tank, heard of her unbelievable real estate deals that make millions of dollars, and might own a product or two that she’s invested in. She’s spent her entire career betting on New York real estate, and her risk has come with tens of millions of dollars in rewards. And while Barbara is known for her “go with your gut” type of investing, her son, Tom Higgins, went a completely different direction—and it paid off. Tom has flown under the radar for most of his real estate career, never relying on his Corcoran lineage thanks to his different last name. He worked at a real estate brokerage in college, attended real estate finance classes at night, and eventually found himself in the industry as a real estate development professional, helping develop and renovate over 2,000 multifamily rental units! Tom is a hard-numbers guy. He knows the cash-on-cash return, loan-to-value, and acquisition cost of every deal he’s done. Barbara, on the other hand, self-admittedly, can barely remember which metrics are which. Today, Barbara and Tom debate whether you should go with your head or heart when investing in real estate and why using a little bit of both could make you richer than all the other investors. In This Episode We Cover: Barbara and Tom’s sneaky way of finding up-and-coming real estate investing areas Why Barbara says to never touch a DIME of your cash flow until… How Tom made Barbara even more money by making her go against her investing nature  One super simple way to immediately find out if a contractor will be worth the money  Risky leverage and the one type of loan Tom says to STAY AWAY from Why Barbara looks for “old ladies” every time she’s in a new market  How Tom uses BiggerPockets to meet investors, contractors, and partners (and why you should too!)  And So Much More! Links from the Show Find an Agent Find a Lender BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast BiggerPockets Merch Listen to All Your Favorite BiggerPockets Podcasts in One Place Learn About Real Estate, The Housing Market, and Money Management with The BiggerPockets Podcasts Get More Deals Done with The BiggerPockets Investing Tools Find a BiggerPockets Real Estate Meetup in Your Area Davids's BiggerPockets Profile David's Instagram Subscribe to David’s YouTube Channel Rob's BiggerPockets Profile Rob's Instagram Rob's TikTok Rob's Twitter Rob's YouTube Meet Your Next Partner, Contractor, or Investing Buddy on the BiggerPockets Forums Barbara Corcoran’s Wild Real Estate Tactics You’ll Want to Repeat FIRE by 27 Using the “Chick-Fil-A Rule” of Real Estate Books Mentioned in the Show: Pillars of Wealth by David Greene Connect with Barbara: Barbara's Instagram Barbara's Podcast Barbara's TikTok Barbara's X/Twitter Connect with Tom: Tom's BiggerPockets Profile Tom's X/Twitter Click here to listen to the full episode: https://www.biggerpockets.com/blog/real-estate-842 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 842. What's going on, everyone? This is David Green, you are host of the Bigger Pockets Real Estate podcast here today with my co-host, Rob Abasolo, and some special guests. Today, Rob and I are going to be interviewing Barbara Corkerin and Tom Higgins. And we are going to be getting into if real estate investing is art, science, a little bit of both, how to know which of them you should be focusing on.

and the best way to move forward in today's uncertain market. But before we bring in Barbara and Tom, today's quick tip is going to be brought to you by Rob Abasolo. Go walk a neighborhood at night. If you are thinking about investing somewhere, don't just look at the Googled photos or what posted online. Go drive there yourself after the sunsets and see what the vibe of the neighborhood is.

And you're going to hear Barbara talk about how she does it. She brings a bodyguard with her, so don't do your walk, Abas Solo. do it Abba with a partner. Barbara, Tom, how are you two doing today? Very well. Thank you very much for having us. Thank you for having us. Very excited to be here.

I want to say that this is, Barbara, this is a little bit of redemption for me because the last episode that we did a few months ago, I remember getting off that interview and thinking, wow, that was amazing. I think I did really well. That interview was so great. And then it got posted to YouTube. And I went to the comment section and everyone was like, Rob, make your bed. and I realized that I was in a hotel and I hadn't made my bed and it was just the covers were in a ball and I was mortified. And so I just want you to know I've dusted. I've meticulously crafted the chaos you see behind me. So this is my redemption. Well, Rob, I think David might have you beat because he racked the cool balls on the floor table. He did. And in the correct order, I see that eight ball in the right spot. So we know he comes prepared. For anyone that didn't catch our last show with Barbara, I highly

recommend show number 763 where Barbara brought so much value that people like me didn't even notice that Rob's bed wasn't made. If you didn't catch that episode or you were unfamiliar with today's guest, Barbara Corcoran is put simply the queen of New York real estate. She's a host on Shark Tank has been investing for decades, is also a mom of two kids, including our other guest on today's show, Tom Higgins. Tom started in real estate right out of college. He now works in real estate development and has followed in his mom's footsteps, but 10 silica deals differently than Barbara does. Tom's a little more head, Barbara's a little more heart, and we are going to get into both of them today. So I am excited for today's show, especially in today's market where

no one really knows what to do because it is the craziest market that I have seen in my short lifetime. So today we're going to be trying to answer the age old question, should you trust your head or go with your gut? Israelist in investing art or science. We're going to break down some deals each of you have done to see how these two different approaches work in practical terms. Before we get into the deals, Barbara, was there a moment from Tom's childhood when you knew that he would grow up to have this fact-driven analytical mind that would be so different than your approach? No, it was a total surprise. You know, his father and myself, we each own brokerage firms in different states. We talked real estate at the table all the time. Tom never asked us a question,

would wander off, had no interest. However, he liked to play Monopoly. And by the time he was 11, playing against adults, we all refused to play with them because he always won. He always got Broadwalk and Park Place. He always didn't pay rent when he landed on our property because he had coerced us into buying utility and getting a free pass. I mean, he had more ankles working, so he finally gave up. We're not playing with you anymore, Tom. Not playing with you ever done. Sometimes it's not what you know, it's who you know. And when your parents are the ones playing the game, the shameless tugging of heartstrings can get you to the top, Tom. So way to work with what you had. Looks like that that strategy didn't last forever, though. Do you remember a time in your

life where you made a transition out of emotional manipulation and into actually knowing how the numbers work out of view? No, I can't say that. I have. First, I definitely use what I had and advantages I had when I was playing Monopoly with my parents. But I don't think I take the same approach in real estate investing today where you just mortgage all your properties and use all your cash to buy the most expensive one. But I got my start in real estate when I was in college, like you said earlier, in brokerage. I wanted to use the Higgins last name, fly under the radar and see if I liked the industry. And I was able to get my salesperson's license, start renting apartments when I was attending Columbia. At night, I was taking real estate finance classes.

I really wanted to know that is it in my DNA and is this something that I want to do? And I didn't want to get a misconception based off of who my parents were and kind of get a different feel for the industry. So I was able to get very direct experience and fly under the radar, which was very valuable to me. I leveraged that experience to get a job out of college working for a large real estate developer in New York City, was able to get an internship. And I held on to that and turned that into a full-time position. And now I've worked for eight years in institutional multi-family development. And before starting my own company, 18 months ago, I renovated or developed over 2,000 multifamily units in the U.S. All right. Well, that gives us a pretty good idea of where you're coming

from. Before we get into the deal that each of you brought, let's take a quick break to hear from today's sponsor. All right. We are now going to hear from both Barbara and Tom about a deal that they've bought, and then we're going to discuss if the head or the heart is the right way to move forward. Most investors spend all their time talking about their high-level returns. But that's not the number that actually matters. What actually matters is what you keep after taxes, and that's where multifamily real estate quietly stands out. With built-in advantages like depreciation,

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All right, Barbara, I want to hear from you first as the queen. Frankly, if you didn't go first, you'd have the ability to chop off my head, and I like it where it is. I trust that you will, you've got a good one here for us today. So tell us about a deal that you have in mind that exemplifies the gut slash heart strategy. I chose my second deal I ever made because it was indicative of so many deals I made after that point. I was wanting to find an office in Fort Green, Brooklyn, because I knew as a real estate agent, nobody was in there. My competitors were asleep at the wheel, and I wanted to go in there and blow them away, honestly. It was just my competitive spirit.

So I was looking for the right location, Fort Green. I knew nothing about it. And so I went hunting for people. I started talking to people, and I found a lovely school teacher who knew that block, every block inside and out and new fork green she had born and raised there and i made her my 10% partner she was thrilled and what her job was find me the best building i could have relied on brokers nobody really saturated that market but i knew if i had someone who was born and bred in that area she knew the good blocks from the bad blocks and she brought me to what was i think one of the best blocks

in brooklyn on lafayette street and it was up and coming it was a four-story townhouse with six apartments in a commercial space on the ground floor. So I threw it in an office, opened an office, hoping to God I'd make money on that office. I knew one thing for sure. The tenants above paid the mortgage. And that has always been my golden rule. If you could buy a property with 20% down, which has always been my formula because I used to do it with 10%, but it's not possible anymore. 20% down, you break even, you get the tenants to pay your mortgage. You always make money. And if you could saddle it onto the back of an up-and-coming area, you'd make a lot of money. So I paid a million dollars in put $200,000 into that.

And 20 years later, I sold it for 3.2, which I think is 10 times the return in equity. I'm not sure that's the lingo. But I repeated that formula again and again and again, always with a 10% of my partner, always finding the best spot, trusting the partner, and then making sure the tenants paid my mortgage. And it's pretty easy that way. I mean, I was conservative, had my formula like departments. So it just felt natural to me. And I've repeated that scenario again and again and again.

So you started with $200,000 down. Was it 10 years later you sold it at a $2.2 million profit? No, I wish it was 10 years later. It was 20 years later. 20 years. Okay. So you more than 10 extra money over those 20 years. And you said that the mortgage was covering the asset the time you had.

Was it actually cash flowing at all or was it pretty much breaking even? Just exactly break even. And in fact, I have to tell you, I don't look to make any money in any building I buy. I figure the first year or two, if I break even, I'm smiling all the way to the bank. 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 in. Then I refinancing and pull a lot of cash out.

Refinance, pull more cash out. Come on. Real estate is magical. If done right, it's magical. And it's such a pleasure to deal with real estate. Yeah. Well, I think we can all agree there. I've got a follow-up question on that because you said that you go into these properties

and you don't necessarily mind breaking even because that's part of the real estate game. But for someone starting out, What is your suggestion on making money? Should someone have a nine to five or should someone have another form of making money and try as long as possible to never really pay themselves from real estate? Definitely. You cripple your business you start taking money out. You want to see how long you go without touching and dime. And that's what I did every time. My day job was running a brokerage firm and building it. I made good money from that. But 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. If you're new to the business, you have an advantage that old people don't have. People have done it 100 times before. You don't have a memory of what it's sold for last year. You're new to the market. You can judge your own face value because your memory is not your deficit. With somebody like me, I remember what I could have bought it from last year the year before. It makes me pay less.

But as a newcomer, you usually pay the top price. And that's usually the right thing to do as long as the break even. Well, you know, you ended up with a slightly higher, if my mouth in my head is correct, a little more than a 50% return if you look at the equity year over year, right? I should have had Tom figure that out. Yeah, it's funny. Well, most people analyze a property and look at it's cash on cash return and that's how they make their decision. Is it 8%? Is it 10%? Is it 12%? You didn't look at any of that, but you followed the principles of successful investing and it worked out to more than a 50% ROI year over year, which nobody can find in today's market. So does that have something to do with why you look at these fundamentals and rely with your gut rather than letting the

spreadsheet make the decision for you? Yes. A, I don't really understand the numbers as you're citing them. I don't know what they're called. I can do only simple math. It's not my forte. So I can do the math. Will it cover the overhead? Okay, I'll buy it. Can I come up with the 20%? Okay, I'll buy it. Will I pay more than the next guy? I very often overbid another buyer. I don't care as long as it's break even. Right. Pay 10% more. Usually it's break even anyway. It's just about break even. So I don't hesitate at all. And I don't have any sophisticated rules in my head. I'm just no good at it. So I use what I've got.

Tom, was there anything you wanted to add about your mom's deal? No, no. I just was reminiscing on when I first started doing deals, why I had a W-2 job using the 1% rule when I was listening to bigger pockets and Brandon Turner in college. So it was just fond memories of building enough doors and building enough revenue to be

able to eventually go out full-time into real estate investing. Yeah. And is your philosophy similar in that when you're getting into real estate and your real estate investing, buying a property, not paying yourself from real estate, making money in other ways? Or where do you align on that, Thomas? I think it's case by case. I think if you're truly taking an investor-first approach, definitely having the W-2 income is near essential, especially if you're starting in, like, true sub-institutional value-ad multifamily, collecting those first 10, 20, 30 doors before you can go out full-time and have the management revenue or whatever other fee revenue support you. It's

essential. If you're a broker and you're doing transactions and maybe picking up a few units along the way, it's maybe a little bit different approach. But having that other income, especially in an environment like this, is essential, in my opinion. That makes sense. Yeah. And you were pretty similar there too, right, David? I mean, you were, I think you were working as a waiter and just stacking all your chips as much as possible and never really paying yourself from your real estate for many, many years, if I remember correctly. Yeah, same philosophy when I was a waiter. Then when I was a police officer and even when I was a real estate agent, I was still, I wasn't living off any of the money that the properties made. It was really delayed gratification, which is the same thing Barbara

spoke about. I love it because of the simplicity. You make sure that it pays for itself. So you don't to worry about losing money if it's at least breaking even. You don't think about it, so you're not tempted to pull out the equity and put it into something else or get too fancy with it. You put your brain power towards making money in different areas, which is a much better return than fanatically, maniacally looking at your investment every single day and worrying about what Zillow says or something else says. And then you go back and that $20 that you left in your coat jacket is now like $2,000 because it's been growing the whole time. And you say, what's the best use of it here? Now, Tom, I'm going to shift.

over to you. Rob and I are going to run down a list of questions to learn about your deal. And then we're going to hear a little bit about it. So the first question is, what type of property is it that you have to discuss today? I'll use, I'll use kind of a nice combination of heart and mind for the deal that I prepared. I think it's one that kind of checks the boxes of a lot of the items that my mother instilled to me at a young age, but also relied heavily on, you know, the more traditional real estate finance training. So it's a north side castle is the deal. It's in Pittsburgh, Pennsylvania in the north side. It is an eight unit value ad multifamily deal that was bought on market. We initially offered on it in 2019. Early 2019, we hung around the hoop for 12 months.

It was bought from a mom and pop that did not have enough money set aside to renovate it. And we underwrote that actually pretty much identically to the 1% rule. We don't use that term or anymore. We view everything on a unlevered, untrended, stabilized yield on cost. But in preparation for this, I did a little bit of a cross-reference, assuming a 30% expense ratio, your 1% rule equals an 8.4% yield on cost. So, right, it was 8.2, we underwrote it too. when we bought it. And can you define the term yield on cost? Yeah, net operating income divided by your

total cost basis, not contemplating debt. So revenue minus expenses divided by total cost. So that's very similar to when we talk about a cash on cash return with residential real estate. You're taking how much the property made and dividing it by how much you put into it. That's what cost basis would stand for. And I can see, Tom, you do have a background in real estate finance because you use all this fancy terminology. I'm curious if you've ever been tempted to call it finance instead of finance, because that does not fancy. It's about the pinky rays when drinking glass. You know, it's funny, like, within my limited experience in the real estate finance world, even using unlevered yield on cost is like a no-no. It's like, that's the simplest metric you can

possibly use. People are typically referring to IRR, net multiples, MOIC. It can get really, really crazy, but we try to focus on what is very similar to cash on cash or the 1% rule is your unlevered yield on cost. Yeah, there's a principle in life that in my opinion, the more, when someone takes a simple concept and tries to complicate it, they usually want to look smart and it's about their ego. When someone takes a complicated concept and simplifies it, they're usually all about trying to empower other people. So that's just one of the metrics that I'm getting to know people that helps me decide if I like them or not, is do they use fancy the acronyms and industry-specific vernacular so that they can sound like they're smart that

makes everyone go, man, this is way too much for me. I couldn't get involved. But really, the metrics and the fundamentals of real estate are the same, whether they're in commercial, whether they're in residential. You're always trying to buy the best location. You're always trying to add value. David, I concur with everything you just said. See what you did there, Rob. Great pontification there. Superb. So I'm curious, Barbara, as someone who has a ton of success, both in real estate and in business, which I personally believe is the better route I wrote about that in pillars of wealth that too many people focus on one pillar. They're all in on investing or they're all in on business, but you really want to be blending, playing good defense with your money,

making money as well as investing it. Do you ever consult with Tom and bring him in on some of the deals you're looking at to see if your gut instinct actually makes sense from a logistical standpoint, mental standpoint. More recently, I have. You have to appreciate everything you guys were just talking about those terms. I have no idea what they are. So very often when Tommy explains something to me, I don't know what he's talking about, but I know he knows what he's talking about. So I've learned to trust that. What happened recently, I was renovating a duplex down on West 11th Street or 12th Street in the village. And it had a commercial space on the ground floor. I had clearly decided I'm turning that commercial duplex space into four units. I love units. The

tenants always pay the rent the rent's always going up it's a cash cow that building i'm getting rid of this commercial space it's hard to rent and i'm making units and we got the approvals all set to bash in the walls and tom calls and says i got an out of the box offer from a guy who's willing to grossly overpay sign a long-term lease do all the work you should contemplate doing this deal and my immediate response is no i'm already committed to residential i really want to go there that's really what i want until he's sharing his numbers with me in a way that I could understand. And it was like, no problem. Let's let them have the lease.

No cash up front. What were all the benefits of that, Tom? You were very persuasive to me. You convinced me to go with the other deal like within about 30 seconds. Yeah, I mean, $5,000 more a month and one third the dollars spend, you know, out your pocket. So like David said, it can get simple quickly when the deal is good enough. So was this person, was it a triple net lease and you didn't have to spend as much money to renovate because he wanted it closer to condition it was already in.

Now look who's using fancy words, Mr. Triple Net Lease. Double net lease, no, okay. So it was a commercial duplex in a great neighborhood downtown. And as of Wright, it could be converted to residential. So it was grandfathered in non-conforming use. But we got an unsolicited offer from a furniture company that wanted to use it as a showroom. And instead of kind of saying, no, we're, going multifamily, we dug in and we diligence the high credit tenant and with multiple other

locations nationally. And we decided to go forward with them and so far so good. Yeah. And what I like about that is if it doesn't work out, Barbara's original plan is still right there. You're really not losing anything by taking this chance. Because as you said that, I thought about, I think I've seen more going out of business from furniture stores than any other company. Like they're always going out of business. But shoot, if you're making all this money while they're there, and then worst case scenario happens, they do out of business. You just go turn it into four residential units and you're even better off. I've always been more comfortable with residential space. I like nothing better than a fat tenant on my third floor, pay me a lot of rent and I raise it up, raise it up with the

lease renewals. I don't really like 10-year leases on a commercial space where it's predetermined. For me, it's not as exciting, but the numbers were so convincing. I had to listen to Tom and go the other way. Well, Barbara, do you also think your business experience plays into this because you've seen how easily businesses can go out of business versus a residential tenant is less likely to just stop paying their rent? You know, a residential tenant moves out. You evict them, they don't pay their rent. Anything goes wrong. You replace them with another tenant who will pay you more. That's generally the case in New York City. But a commercial tenant, no matter how good their credit is, no matter how successful they are, it's not a personal investment for them. And they will be

quick to fold and go out of town. So I don't really trust anybody in the commercial space. I have a hard time trusting. And that is my business experience. I don't even trust myself on commercial stuff. Never mind the next guy. Yeah. Another thing there is when you have a turn on a residential unit, which is the phrase we use for when the tenant leaves and a new one comes in, paint, maybe some flooring, a couple of repairs. It's good to go. These commercial properties, you may have your next tenant want $150,000 in tenant improvements to make it suitable for them. And Sometimes you've got to wait eight years before you break even on that thing. Tom, I see that you're just like ready to jump in. Educate us on the difference here between when you have a residential tenant leave and a commercial tenant.

No, no, I was just agreeing with you. The TIs that people require in New York City now are insane. And sorry, sorry, Tom. What is a TI? Tenant improvements. So the amount of money that the tenant makes you put into the space, you know, it makes an apartment turn look very, very attractive. Yeah. Imagine if like you had a residential tenant and they said, hey, before I move in, I'm I'm going to need Viking appliances and I don't like the floor. Move these walls around. I want vaulted ceilings. I'm going to need a hot tub in my bedroom. And it's going to be $100,000 for me to agree to move in.

That's how the commercial space can work. And no one tells you that when they're talking about these great triple net passive income properties. And then four months free, two months security deposit. No, but as a whole portfolio, we only have three properties with retail and they're only on the bottom floor. So it's all mixed use. And Barbara, you made a really good point, too, that I just before move on to Tom's deal I wanted to mention. The rent increases in residential historically are like Godzilla compared to what they are in commercial where it's like the Geico Lizard. And it's one of those things where Barbara's gut, you recognize that's the case.

You don't always work it into a spreadsheet to be able to articulate it like that, but your brain sees it. It puts it in the background of the algorithm that you used to make decisions. And it's a wise way of looking at it. But sometimes when we talk about the heart or the gut, we assume that it's just pure emotion and there's no logic or factual data to back it up. You know, if you think about what your gut is, it's a culmination of everything you've learned to date. And that's why I trust my gut. You must have had a lot of different experience in different areas. But in the end, when you just get a gut feeling that this is a good, this is a winner,

this is a phenomenal. And you trust that gut without second guessing yourself. It's usually based on a lot of fact and experience you've had. You might not articulate it, but it's not just whimsical. Like, whoa, I love the street. You know, not that kind of thing at all. I love that. Barbara Kirkland dropping bars on the Bigger Pockets podcast. So Tom, I've got a question for you. I know we sort of talked about you consulting Barbara on this deal and, you know, the numbers sort of trumped the vision or the heart on this. Are there times where that's flipped where you're in on the numbers and Barbara comes in and says, hey, I've got a much bigger vision for this and kind of deters from your plan? How often are y'all consulting each other?

I would say that it's more general guidelines that she gives me. And what I was trying to think about some really concrete examples of times that I've leaned on my mother's advice in investing. And I think the Northside Castle example is great. So we offer what we believe is the right price. It's at the 1% rule or 8.4% yield on cost. So it checks our box. That at the time was at 3 and change. you have amazing spread at a low LTV.

It's going to cash flow extraordinarily well. How we found that property and how we turned down the property nearby, you know, we're both examples of kind of the guidance that the softer skills. So when I first started getting into the Pittsburgh market, the way we got turned on to the north side is I went out to all the local bars and I asked the people living there, you know, where would you want to live in the next, you know, when you graduate college or where are you looking to stay? And that was how we got turned on to the north side and how we found the path of progress within that city. So, like, I don't think, you know, even if you looked

at the supply metrics and the job growth in the individual area, you need to interact with the humans and just hear where cool people are wanting to live to really sense the path of progress. The other side and the softer skill side is a property right down the road. We absolutely loved the deal that we did in the north side here. It's doing phenomenally well, has great views, high ceilings, existing building built in 1920s. Very similar property down the road exists, and we were pretty much fully capitalized, ready to do the deal. But one of my mother's early tips that she gave me is that you always have to see a property at night. It may look great on Google Maps. You may drive it. You may walk it all during the daytime. But you don't know a

property until you see it at nighttime. And we were ready to close, ready to buy it. And I just had a feeling and followed her advice and saw it at night. And it happened that there was people selling drugs in the next door spot and people all standing outside, something that you would have never known, but it would have made leasing that property up. Your vacancy would have been extraordinarily high. And it would have resulted in a very bad outcome. That's a very good point. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it. Multi-family real estate offers structural advantages.

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certain way. You can manipulate the numbers to be the way that you want them to be. And that isn't the way that it works out in execution. And Tom, I think that you're doing a good service to everyone mentioning the fact that if you rely heavily on what you see on a spreadsheet and you assume numbers are safe and everything else is just like Barbara said, whimsical, you can make a really big mistake because numbers can be manipulated just like everything else. Do either of you have an example of a time that you've seen a deal in your own life or maybe in someone else's? I've got a great example. The first deal I made, I bought a 20-unit motel. I may have mentioned this in the last podcast. Forgive me if I have. But I bought a 20-unit motel in Duchess County because it was a fat

and juicy rent-roll. I thought, oh, I can afford the down payment. I was about 30 years old. I'm getting excited about making my first deal. I checked all the leases and the rent roll was phenomenal. But when I closed on it, I found out that no one in the complex had paid any rent for over two years. No one was employed. It was like a boarding house. And so what really happened with that building in the and I lost all my money. I buried the building with a local guy who came with a tractor trailer, dug a hole and shoved it down the hole and got out of it. Wait, really?

Definitely. And I would never, ever buy anything without checking the rent receipts. You learned that lesson. I've never heard of a person burying a building before this, Barbara. You're the first. Yeah, I thought you were going to say figuratively. Like, yeah, figuratively you literally, you hired someone. And then it came and then they pushed it into a hole.

Old Charlie did it. And you know what the feedback I got? Not what happened in the building. and a wisdom hotel, but people were mourning the loss because all the young women in the neighborhood who were about 30 years old said, that was a hotbed hotel. We met our boyfriend there. Everybody mourned the loss of the romance of the whole thing. I'm not me. I was happy to get rid of it. Well, nobody was having to pay for anything. Of course, they lost their free ticket there. Tom, have you heard the story of the Atari game ET where they had to make a whole bunch of copies before

Christmas, but they rushed the production of the video game and ended up being the worst video game that had ever been made and no one bought it. So they had like hundreds of thousands of copies of this horrible video game and they ended just burying them in a huge hole in the middle of the desert in like complete shame. That reminds me of like what Barbara did this hotel. And then did you build something in his place or did you sell the land to developer? Bacon, land and I handed the deed back to the original owner, elderly man. He didn't even want it back.

It was just gone. God. Adios. Yeah, but it's a great point. On a spreadsheet, spreadsheet it looks solid, right? If other people would have been investing in that deal, based off what they saw on a spreadsheet, which is another thing that comes up a lot, when you put your money in with a syndicator and you ask for, well, show me the numbers. How do you know what you're looking at is

actually real? No one asked that question. They can make the numbers look like whatever they want. You make your decision based off of numbers that are not tied to or connected to reality. It can go pretty bad. So we've seen how trusting just pure information can be misleading. So Barbara, what does make you feel comfortable when you're going after a deal? trusting the individual, and that is a gut feel if you want to call it that. But I don't look at the object, even on Shark Tank today, I don't look at the business as very deep. I look at the entrepreneur and examine them.

Is this somebody I really trust? When I'm buying a piece of property and someone's representing numbers, I check out as best I can. But there's so much finagulum that can go on. I ask myself, do I trust this guy? You know, we're all dealing on trust, more than you are in real estate. You want to build a big business? Got to get people to trust you.

You want people to trust you. You've got to be trustworthy. So I think trust is a major card in all sales and all investment. You have to trust whoever is dealing it out. I couldn't agree more. And I think it's like all the way up and down the real estate game. The brokers, the lenders, the inspectors, your contractors, probably most importantly.

And I probably spend 90% of my time on the contractor piece of the equation. Is that sort of like your main thing that you're looking for? Is that what makes you comfortable as you're going into a deal where there's already like a good contracting labor force there? Are you looking for value add specifically? Are you looking to get into a stabilized property? What's kind of like a prime opportunity for you in 2023? We do 95% of our deals, heavy value add. My backgrounds in construction management, ground up development. I feel very comfortable in that space. And I grew up reading Fine Home Building magazine and listening to bigger pockets and did some really rough deals in the beginning and cut

my teeth doing flips and now we do everything burr sub-institutional heavy value ad and we rely on our local contractors to do that work. I think if you can get in at a great basis with a very reasonable leverage and you have a good team to bring properties in the path of progress to top of market value, it's a really great way to kind of build your portfolio in my experience. But it takes a lot of work. You know, I learned something from Tom's uncle, my brother, who was a roofer his whole life, a small roof with three guys working for him. I asked him one day, I was trying to sign on contractors. I was asking him to come and interview these contractors to renovate, for my record, a big job. It had like eight units.

I was a little nervous. It was bigger than I was used to. And he said, you don't need me. Just look at the guy's truck. If it's neat, he runs a good job. It's a mess. He's not going to come through. I can use that over and over again.

Come on now. Let's talk by your truck. You have a look at the truck. It tells you what kind of. contractor you have there? Yeah, we've had to build our construction companies in each of our markets pretty much from the ground up where we take a guy with one or two people that are working with him and give him more business, build out his team, provide him prop tech, provide him consistent workflow, put kind of guardrails on the process. And that's the only way we've been successful. When we're just

out there shopping, big contractors and bidding jobs, bidding jobs, It just maybe one project goes well, and by your third, it's a problem. So we feel like you really need to build it from the ground up. So Barbara, Tom mentioned the path of progress and looking to buy where things are going. And I know that's something that I think you're one of the experts on. You've given some very powerful but simple advice. Just for people that haven't heard your take on how to know where to go by, can you share some of the simple things that you look for that have led to you having so much success in the past?

Some of them are similar to Tom. I didn't know he went to bars and listened to people where they want to live. Really smart. I wish I had thought of that myself and I'd done that. But where I found my up-and-coming neighborhoods is always at restaurants, usually nice restaurants where there was a creative community there. Kids that are hustling are really dancers, are really artists. But they're breaking into New York. They're very young in the early 20s.

I always chat them up, much like Tom talks to the bartender, I guess. Hey, where do you live? Where are you going? Where should you live? Do you have roommates? I'm friendly to us. of them and then they say I'm in bed stuyves in Brooklyn where is that I don't let two days pass by where I don't take a car out there with a big driver so I'm not afraid at night and coasts the

streets at night just to see what's really going on there and why at night that I like it because all the bad stuff as Tom related earlier shows up at night but also the street light the activity the little tiny restaurants it all happened at night first because the rents are cheap and little dive bars and stuff like that. I see the activity. If the gay community is moving in there, it's a sure shot. I bring my money right in there. I'm always looking to, for the right side of the street, I stand during the daytime and do a body counter how many.

I think that's done with, I guess, all kinds of people renting commercial space. But I do for residential space. See what side of the street people like to walk on. That gives me more tenants, okay? I buy it in the right block, the right building. I look at the nightlife. Another thing I use is, oh, ladies, during the day. When I go back during the day, I'm always looking for old ladies in New York City.

Old ladies sit on benches when they're not afraid. You go into a neighborhood. You see empty benches and not a good sign. I see the old ladies sitting there feeding the pigeons. It makes me smile. I look at the geranium boxes in the windows. You know, people steal geraniums. They pull out the geraniums. They rip off the boxes. But I see the geranium boxes there the whole week. I'm like, they're leaving the boxes alone. And then the very last thing I'm hoping for, I'm saying, you come on bring it in for me, bring it in, is I'm hoping to spot little baby strollers here and there in vestibules. Look in the vestibule, the baby strollers are there thinking,

aha, the yuppies are moving in. They're just beginning and following the creative community. This is a hot area. So that's the basic call for me, the hot area. You can almost pick the wrong building and do well, because a lot of errors get erased if you board in the right area, but I like to build the right area, the right block, the right building, And of course, always with the right partner.

My 10% partner, that's not a broker who's going to give me honest to good guidance as to what the right blocks on why I should be there if I shouldn't be there. You know, we had a guy on the podcast one time who had what was called the Chick-fil-A rule. And he said if there's a Chick-fil-A in the area, that's where he would invest because they've already sort of done all the market research and spent six figures on all the studies to find out that it is a good up-and-coming area. Likewise, I've also heard that with Whole Foods. If there's a whole food's there, it's too late. You can't afford it anymore. It's too late. I'm not even sure Chick-fil-A is early enough, honestly.

Tom, what about you? You have anything to say on this topic? Yeah, I just wanted to add one of the rules that I think my mother instilled into me that makes her version of real estate investing much safer and more successful and how I started out in the industry and how I say to every single person I ever speak to, whether it's via bigger pockets or just friends of mine, start either with all cash or very low leverage. I think time solves a lot of problems in real estate if you don't have a bridge loan. When you have a bridge loan and a gun to your head, it makes it really, really, really difficult.

And then we've got to be laser focused on every other income line item, every, you know, repayment penalty, every little detail, the moment you start getting into. bridge financing, construction loans, floating loans, makes the game like, you know, you're working with dynamite. So that's something that was instilled to me at a young age is buy all cash, refi out. So a bridge loan in this context would be referring to financing that's for a short period of time. Like maybe in the residential space, you could consider a hard money loan on a flip where you

have a very small margin of error because it's expensive money that you're borrowing. And like you're mentioning, Tom, there's a lot of detail. when it comes to hitting everything right. What I hear you saying here is that the more details that you add, the more complicated it becomes, the more ways there are to make a mistake, you're juggling like 20 eggs instead of two or three. And if an egg breaks,

you're going to lose a lot of money. Is that what you're getting at when you're saying buy cash and renovate out is you just simplify it? Simplify it. Do it for a decade. You still love it. You want to add propane to the fire? Start using bridge financing.

Yeah. That's really good. That's an extreme. That's an extreme, obviously, maybe three, four, five, six years, but definitely not out the gate. No, I would throw that in. In my experience, that's very sound advice, both with real estate investing and with business. I picture too many people like having a lot of screws that are loose that I can't tighten. I don't know which one's going to fall out, which was a strong, got to spend all that time evaluating that. I love it. It's a tight ship. I should caveat this, though, at no point am I trying to fearmonger. I think that, that with an excellent team that has proven itself and a very tight ship, there is always a

place for leverage in real estate. That is something I wanted to ask because, I mean, as much as I love the advice of, hey, buy and, you know, in all cash and then renovate and refi out, that's not the most relatable thing for a lot of investors that are looking to get in the game, especially in 2023. So do you have any advice for someone that really is starting from scratch? and like what what is a very reasonable way forward for someone that wants to get into the game now? I have my opinion on that. I think that partners, partners, partners, partners, network, network, add value, add value, add value, add value, add value. Add value.

Don't even try to avoid pulling the lever of private bridalance. I think it's so tempting, if you can qualify for one. It's so tempting and it can work in a, dropping interest rate environment. In this market today, it's your first deal, your second deal, your third deal, your fifth deal, partner, people want good deals today. People want to put their cash out. People want to partner with people, at least that's been my experience. Bear pockets alone as a phenomenal community to provide those opportunities and try to, you know, be as conservative as humanly possible with your leverage. I think my rule is

keep it simple. And I think for everyone, your first deal is your hardest. Your first deal is your hardest because you're still struggling to trust yourself. And you're thinking the whole time you might be wrong. In fact, you go further, you think I'll probably wrong. So finding someone to be able to give you the cash is very difficult. So I believe, again, getting a simple deal where you could put 20% down and the mortgage and expenses are paid by your tenants and you make no money, it keeps it nice and simple. And then you could build your confidence on that. You know, I really haven't gone beyond that in confidence, honestly. I just do the same old thing over and over and over again.

And I've become very rich. You know what I realized the other day someone mentioned to me, my accountant, and I hope I believe him, he said you worked your whole life, you sold your business for $66 million cash, and I'm happy for it. But I've made so much more money than $66 million investing in property and sitting there and letting them mature. I mean, I work so less. on the properties than I did in my brokerage business. Again, I say real estate. I just love it.

I think what I like about what you just said is that you hear a lot of people talk about real estate and a get rich quick scheme kind of capacity. And what you just said is buy a property and make no money on it, break even and it will appreciate. And it kind of instills this notion of real estate isn't a get rich quick scheme. It's a build wealth slow game. And I really think that's the message that people need to take away from today's episode. So with that said, I do want to say, I said last episode, I was coming to make an offer on your penthouse in New York. I have to be honest, I'm not quite ready for that one yet, but maybe on the next episode

of Bigger Pockets, I'll be there. Yeah, but I'm ready to sell if I could double my money. You're more than welcome in my house. I'll need a little more time. Thomas, I know you've been using Bigger Pockets for a while now. what are some advice you can share for people listening to this episode who hear what you're doing, hear what Barbara's done, say, hey, I've loved to end up in that position in the future. With the community that Bigger Pockets has behind it, how did you use it and what advice do you have for other people to speed up their learning curve and get started? I mean, you guys know this.

I think it's just extraordinarily valuable. I highly recommend, and if anyone reaches out, I'm more than happy to provide the script. that I use, but I've had over 100 calls with people from the Bigger Pockets community as Tom Higgin. And that is the interaction on the forums and speaking with individuals in your general sphere. It doesn't need to be exactly in your market, but somewhere close to your market, you know, creates a snowball effect. You can find partners.

We've done deals with people from Bigger Pockets. They've invested with us. You can find contractors. We always start there. Cleaning companies, inspectors, tax advisors, tax certioriaries. Whenever we're kind of looking for, or especially when we first started out, when we were looking for a new resource to build our business. And we were at a place where we had a team.

In a team meeting, I always said, have you check bigger pockets. And the answer is often no. And within a week or two of them engaging with the community, I'm not saying go just search in the forum, like, you know, search bar and say all your answers are going to be there. It's like DM the person, follow up with the person if they don't respond. Schedule a phone call. Do a 15-minute Q&A.

See how you can add value to them. Maybe create a newsletter where you put all the information that you've learned in the last month via talking with people on bigger pockets while you're working your W-2 job, while you're looking to do that all-cash or low LTV first deal. I think engaging in providing value and being transparent and honest. creates a snowball effect. This is the monopoly strategy showing itself up. Yes, it is.

Isn't it? Build these relationships so that they feel guilty, not helping you when you land on their property. I'm so annoyed that you always wound up with Boardwalk and Park Place. I really am. You never gave anybody a chance. It's not right. Well, apparently he inherited your taste if he's going after Boardwalk and Park Place.

I've always been a Baltic Avenue kind of guy. Yeah, me too. Purple at the beginning. The orange ones were the best because they had the High. Pennsylvania Avenue. They had the highest percent chance of Tennessee Avenue, had the highest percent chance of being landed on out of jail. Let me tell you, not if you were playing with Tom because he would have bought a free pass or two or three of landing on your property. So just when your teeth are coming out, he lands on your can't collect for him from him.

Don't play with it. That's awesome. Last question for each of you. Thomas, what advice do you have for people when it comes to understanding the fundamentals of real estate and using their head? What are the most important things that they should focus on? That's a great question. I had a boss when I was working at the Lanar Corporation, largest home builder in the United States, it was doing ground up to development for them.

And he always told me, you can miss on your rents, but you can never miss on your operating expenses and your hard costs. So for me and my career, like, always have been extrusiatingly detailed on hard cost and have gotten better deal after deal. We've done 54 deals now. deal after deal getting better at OPEX. Rents are hard, right? You need to feel the market. You need to run the comps. You need to dig in, but you can miss.

But no one gets fired if you miss on rents. You miss on hard costs, people get fired. So that was the advice I was given. Awesome. Barbara, same question to you. When it comes to trusting the hard following the gut, what do people need to get right? I believe you have to believe in the whole package, your whole package being real estate, that values go up over the long term.

And I'm just a believer in keeping the faith. When things go bad, I never get shaken. I think wait a bit, just wait a bit. And sure enough, things turn around. I think it's a long game and you just have to have faith in the longevity of the game and where it's going to land you. About my penthouse that you'll be buying this year. I want to tell you something, I would have never had that penthouse if I didn't buy my

first studio. I roll that into a one bedroom. I took out the financing out of a village building. I bought a three bedroom. I took out the refinancing. of another building, I bought a penthouse. Let me tell you, it was all tax-free. All the cash came out because I've been owning these buildings 18, 20 years, and like cash cows, juicy and fat that I could grab that money, you know? But you've got to believe that long-term it's going to be

there. If you stay with, stick with your knitting, and don't strangle the buildings by taking money out too much. I wait until it's really fat and juicy, and then I grab a lot of millions out of them. Okay. That's good advice. I'm going to start. Maybe I'll set my goals to be a little more realistic. I'll start with the studio in New York City and trade up the paperclip method, you know, until I get to the penthouse. The minute interest rates come down, this market's going to go bonkers. Minutes around 5%, 5.5%. Everybody's going to charge the market and all the rents are going to go up. People are going to get greedy. You'll never get your hands on a piece of real estate. Now is the time to buy. I like to say, but I really believe now is the time to buy.

Love it. Well, thanks, you too. This has been an incredibly fascinating conversation, and I was not expecting to get the monopoly background here. Tom, you've come a long way and you were trained by a real shark. So it's great getting to see the dynamic that you two have and the sound advice you've shared. So thanks very much. And for people that want to know more about you, Tom, where can they find you? Yeah, on bigger pockets, very, very active Tom Higgins. Also on Twitter, Tom C. Higgins. This was the first time that I've ever kind of, kind of, I've done something with my mother, but I couldn't turn down going on bigger pockets. I'm a big fan. It was only because you love bigger pockets. You said, I'm not going on anything with you. Mom, I do my own thing until I said, how about bigger pockets? Well, what did it feel like seeing your mom on here before you made it? Was there a little bit of jealousy there?

You know, we have a great relationship. So my mother's always extraordinarily supportive. So we get competitive maybe around who's right on a deal. But, you know, people doing well and providing value. I've always really supportive and happy for her. Well, I want you to know I don't really like you, Thomas Higgins, because you're doing better than me. You're getting better returns. I'm a little bit annoyed about it.

I work for you, you know, you're busy all day on TV. You know, I'm just grinding. Well, we did say before we went live that, you know, if you ever referred to us, Tom, you're in trouble. So I know that she, I know Barbara meant it. I never want to him to do better than me, believe me. Neither did his father. I'm telling that. Barbara, for people that want to find out more about you, where do you recommend they go? Social media platforms, Barbara Corcoran, any of them. C-O-R-C-O-R-A-N. Go follow Barbara. You really do have amazing TikTok and Instagram Reels, big fan of all the content that you're posting. Thank you. We work hard at it. I love doing it,

though. A lot of fun. Well, thanks, you too. It was great having you on. Great interview. We hope to have you back again. And I hope you both have a great day. And that was our show with Barbara Corcoran and Tom Higgins. Wow. This is a bigger pocket exclusive. The first time that this mother and son duo has ever done a podcast together. And you and I were a part of it. How are you feeling, Rob? Honestly, honored, flattered. It was really great. They had an amazing dynamic considering they don't do this together ever. One of the things I thought was really cute. you know, was that when Barbara was on the show a while ago,

she talked about how she went to different neighborhoods and talked to the creatives of that neighborhood. And then Tom gave the advice earlier that he goes to bars and talks to bartenders. And then Barbara was like, oh, that's genius. I never even thought to do that. As if they've never, like, communicated the strategies. I think it's like one of those funny things that, like, Tom kind of, you know, the apple didn't fall far from the tree and he's following a lot of strategies

that I guess it's just in their genes, right? Like the prudent investing. I could see so much of Tom's framework was based in the stuff that Barbara talked about us on previous shows. Like the whole time it was popping out like pattern of recognition of, oh, I know he got that from his mom. He probably heard her talk about this all the time. I actually was thinking like what a great job she did, raising Tom because that guy's a stud. Tom, if you're listening to it, very impressed. You clearly know your stuff.

He reminds me of a young me, honestly. That's what I was thinking the whole time was like, you're like a young me, man. Good for you. Tom, I think you're great. Rob thinks that you remind him of a young him and his own greatness. Either way, though, very impressed, glad that you came on the show. Tom's a big fan on Bigger Pocket, so you guys can go message him on there and tell him what you thought of the show. And we're big fans now, too. One of the thing I was going to say as well as that Tom was coming at this from an analytical standpoint. And then Barbara was talking about, you know, coming at it with the head and the vision. And a lot of the things that she was saying, like, hey, walk on this side, you know, which side of the street are more people walking on. and like it's kind of funny how it is the head and it is sort of like the more feeling approach. But I feel like a lot of the things that she was talking about in a weird way sort of could be quantifiable. And there are numbers behind some of her stances, you know, which I just think it's like kind of funny that in her mind, she's like, oh, I'm not good at numbers, but she just looks at the whole investment a very different way. But the numbers are there. Well, she gave one of the best

lines ever when she said your gut is an accumulation of all the experiences that you've ever had in your life. That's a very different take than someone says, I'm just going to shoot from the hip, or I'm just going to go with my gut. Like, I don't want to put the time in. Barbara's been around real estate for a very long time, around very smart people for a very long time. She's absorbed some of the most high-level knowledge that's out there, and that has created what she calls her gut. Well, that was a whole lot of fun, Rob. I'm glad you were able to be here with me. Thanks a lot everybody for joining us. We are going to get out of here. If you've got a minute, check out another Bigger Pockets video, and if not, we will see you next week.

Thank you all for listening to the Bigger Pockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. On the host and executive producer of the show, Dave Meyer, the show is produced by Ian K, copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com.

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