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FM_FINAL.qxp 3/15/07 3:50 PM Page i

DEFENSIVE
REAL ESTATE
INVESTING
index_FINAL.qxp 3/15/07 3:49 PM Page 258
FM_FINAL.qxp 3/15/07 3:50 PM Page iii

DEFENSIVE
REAL ESTATE
INVESTING
10 Principles for Succeeding
Whether Your Market is Up or Down

William Bronchick, Esq.

With Gary R. Licata

PU B L I S H I NG
New York
FM_FINAL.qxp 3/15/07 3:50 PM Page iv

This publication is designed to provide accurate and authoritative information in

regard to the subject matter covered. It is sold with the understanding that the publisher
is not engaged in rendering legal, accounting, or other professional service. If
legal advice or other expert assistance is required, the services of a competent professional
person should be sought.

Editorial Director: Jennifer Farthing

Development Editor: Joshua Martino
Production Editor: Julio Espin
Typesetting: Black Diamond Graphics
Cover Design: Rod Hernandez

© 2007 by William Bronchick, Gary Licata

Published by Kaplan Publishing

A Division of Kaplan Inc.

All rights reserved. The text of this publication, or any part thereof, may not be reproduced
in any manner whatsoever without written permission from the publisher.
Printed in the United States of America

May 2007
07 08 09 10 9 8 7 6 5 4 3 2 1

ISBN 13: 978-1-4277-5463-9

ISBN 10: 1-4277-5463-2

Kaplan Publishing books are available at special quantity discounts to use for sales
promotions, employee premiums, or educational purposes. Please email our Special
Sales Department to order or for more information at [email protected],
or write to Kaplan Publishing, 888 7th Avenue, 22nd Floor, New York, NY 10106.
FM_FINAL.qxp 3/15/07 3:50 PM Page v

Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

CHAPTER 1: Don’t Try to Get Rich Quick . . . . . . . . . . . . . . . . . . . . . . 1

Getting Rich in Real Estate Isn’t Easy or Instant . . . . . . . . . . . . . . . . . . . . . . . . 1
Start with Realistic Goals and Expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Developing Skills Takes Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Success Requires Education plus Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CHAPTER 2: You Can Profit in Any Market, But You Must
Know Your Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
What Determines the Market? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Analyzing Your Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
What’s Right for You? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CHAPTER 3: Learn How to Valuate a Property. . . . . . . . . . . . . . . . . . 29
The Art and Science of Valuating a Property . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
CHAPTER 4: Determine Your Profit before You Buy . . . . . . . . . . . . . 45
The Past Doesn’t Equal the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Find Motivated Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
How to Analyze a Potential Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
CLEAR System of Analyzing Deals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Balance Your Business with Your Personal Goals . . . . . . . . . . . . . . . . . . . . . . 58
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
CHAPTER 5: Always Invest in “Safe” Deals . . . . . . . . . . . . . . . . . . . . . 61
Invest in Deals, Not Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Stick with Metropolitan Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Buy the WOB in the MOB Near the Blob. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Fixer-Uppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Condominiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
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vi C o n t e n t s

Multifamily Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Properties to Avoid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
CHAPTER 6: Manage Your Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . 81
The Importance of Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
How Much Should You Keep in Reserve? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Cash Flow Applies to Fixer-Uppers and Flips Too! . . . . . . . . . . . . . . . . . . . . . 85
Cash Flow versus Cash Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
How Cash Flow Affects Your Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Generate Both Cash Flow and Cash Reserves . . . . . . . . . . . . . . . . . . . . . . . . . 87
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
CHAPTER 7: Have Multiple Exit Strategies . . . . . . . . . . . . . . . . . . . . . 93
Choices, Choices, Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Exit Strategies and Financing Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
What to Do When Plan A Won’t Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Buy It Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
CHAPTER 8: You’ve Earned It, Now Learn How to Keep It . . . . . . . 111
Know the Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Insurance—Your First Line of Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Corporate Entities—Your Second Line of Defense . . . . . . . . . . . . . . . . . . . . 116
Doing Business with Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Release Yourself from Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Get Educated on Tax Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
CHAPTER 9: Avoid Common Investment Scams . . . . . . . . . . . . . . . 129
The “Too Good to Be True” Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Letting Others “Borrow” Your Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Mortgage Elimination Scam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Syndication Scam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Join the “Club” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Learn What’s Not a Scam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Don’t Involve Yourself in a Scam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
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C o n t e n t s vii

CHAPTER 10: Treat Real Estate Investing as a Business . . . . . . . . . . . 141

Should You Invest Full Time? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Act Professionally and Look the Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Tools of the Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Assessing Your Strengths and Weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Cash is King—But So Are Great Deals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Setting Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Enlisting Your Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Hire Employees to Increase Your Effectiveness . . . . . . . . . . . . . . . . . . . . . . . 156
Learn Your Local Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Personal Traits of a Defensive Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Key Points to Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
SUMMARY: The Ten Principles of Defensive Investing . . . . . . . . . . . . . . . . . 165
APPENDIX 1: Internet Resources for Market Data . . . . . . . . . . . . . . . . . . . . . . 167
APPENDIX 2: Sample Residential Appraisal Report. . . . . . . . . . . . . . . . . . . . . . 169
APPENDIX 3: Recommended Reading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
APPENDIX 4: Resources for Tenant Screening . . . . . . . . . . . . . . . . . . . . . . . . . 195
APPENDIX 5: Sample Property Cash Flow Analysis. . . . . . . . . . . . . . . . . . . . . . 197
APPENDIX 6: Sample Property Disclosure Form . . . . . . . . . . . . . . . . . . . . . . . . 198
APPENDIX 7: Sample Independent Contractor Agreement. . . . . . . . . . . . . . . . 203
APPENDIX 8: Sample Joint Venture Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 207
APPENDIX 9: Sample General Release of Liability Form . . . . . . . . . . . . . . . . . . 211
APPENDIX 10: IRS Publication 537 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
APPENDIX 11: Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
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FM_FINAL.qxp 3/15/07 3:50 PM Page ix

Preface
Instead of the Latest “Secret Formula,” Learn Proven Steps
to Success
The recent “real estate boom” has led to an equally great boom in
the number of books published on the subject of how to make money
in the real estate market. Everywhere you turn—whether it’s print, tel-
evision, or the Internet—people are talking about real estate. Is it going
up or down? Do you get in now, later, or is it too late? There are many
resources: some good, some bad, some original, and some just a rehash
of old ideas. Occasionally, though, an author writes a special book that
really sets him or her apart from the pack. That such writer is William
“Bill” Bronchick.
Bill Bronchick is an accomplished author, speaker, commentator,
and real estate investor. This book, Defensive Real Estate Investing, is
a culmination of his years of practical experience and the experiences
of other investors we know. For those of us who view real estate in-
vesting as a profession, Bill has produced a book that anyone can use,
whether you’re a novice or seasoned professional.
Defensive Real Estate Investing is an in-depth look at the chal-
lenges of succeeding in both the short term and long term as a real es-
tate investor. Novice investors are often looking for a “magic
bullet”—an idealistic, hopeful way to make a quick buck. These im-
petuous investors soon realize that their approaches to investing don’t
work consistently and they’re off in search of the next “secret formula”
that will make it all work.
At some point, novice investors (and even some experienced in-
vestors) come to the frustrating conclusion that real estate investing is
harder than they thought. If this is the case, why do so many people
believe you can get rich quickly by investing in real estate? Given this
conundrum, is it possible that success in real estate investing is limited
to the lucky or privileged few?
Bill says, “Success in real estate is for just about everyone.” It does-
n’t matter whether you have an hourly job in a fast-food restaurant or
FM_FINAL.qxp 3/15/07 3:50 PM Page x

x P r e f a c e

you’re the CEO of a large corporation. You must, however, follow cer-
tain steps to be successful. If you take shortcuts, you run the risk of fail-
ure. Instead of offering a magic bullet or secret formula, Defensive
Real Estate Investing provides you with concrete steps to success.

Successful Investors Are Made, Not Born

To be a successful investor, you must acquire the correct real estate

investor mindset, learn sound money management skills, and most im-
portant, develop a “can do” attitude with an appropriate plan of action.
Bill has developed several brilliant acronyms that make it easy to
learn and remember these steps to success, like the “Buy the WOB in
the MOB near the Blob” and the CLEAR method of analyzing a deal to
determine if it is a great deal. (You’ll learn about these concepts later
in this book.)
Remember, to succeed, you must first learn to think like a suc-
cessful real estate investor. After you read this book, you’ll have gained
the real estate investor’s mindset and you will have a set of guidelines
to use and review. Success in real estate investing looks easy and it can
be—but only for those who know how.
This book is both for serious beginners who are studying real estate
investing and for experienced investors who need to go back to the ba-
sics to polish their techniques and improve their profits.
I’ve known Bill Bronchick for more than ten years. Together, we
offer more than 40 years of combined real estate experience. It’s been
a privilege collaborating on this book. In fact, through him, I’ve re-
learned real estate investing techniques that have helped me become a
more profitable investor.
My recommendation therefore is to enjoy Defensive Real Estate In-
vesting to develop the proper real estate success mindset, learn sound
money management skills, and develop your “can do” attitude and plan
of action. I invite you to read, enjoy, and learn from our experiences.
—Gary R. Licata
FM_FINAL.qxp 3/15/07 3:50 PM Page xi

Introduction
The Key to Success is Using Ten Principles of Defensive Investing
Countless people are attempting to become real estate moguls in
today’s market. All of them, in one way or another, strive to be suc-
cessful. Gary Licata and I know from our past 40 years of combined ex-
perience that, unfortunately, the vast majority of these people will fail.
Despite their best efforts, many of them won’t be able quit their day
job or, if they do, they may not be able to sustain a steady income
stream by being a real estate investor. Many of them will go to from one
seminar to another, read book after book, and eventually quit the busi-
ness altogether out of frustration, failure, or impatience. You may know
someone like this or you may be that someone. Is there an answer to
this dilemma? Yes, and you’ll find the answer in this book, Defensive
Real Estate Investing.
Real estate markets go up and down, and every investor, whether
novice or experienced, must learn the principles of successful invest-
ing to survive. While the title Defensive Real Estate Investing suggests
that this book is intended for those investing in falling housing mar-
kets, the principles apply to every market. This book conveys ten uni-
versal principles that have stood—and will continue to stand—the test
of time. Regardless of where the market is heading, ten principles of
defensive investing will work for you every time, in any market.

The Ten Principles—Proven and Reliable

These ten principles are not magic bullets; they’re tried and tested
concepts that are proven and reliable. We use these methods in our
own real estate investing careers. In addition, we’ve met thousands of
investors who have succeeded and failed. We’ve elicited a common
thread from their successes and failures for this book.
Take one of our clients, Sharon. A few years ago, she and her hus-
band wanted to make a move out of their stressful business. Doing
fairly well, they had managed to save a few hundred thousand dollars.
FM_FINAL.qxp 3/15/07 3:50 PM Page xii

xii I n t r o d u c t i o n

However, they were nearing retirement age and didn’t have enough
money in their retirement savings to retire comfortably.
Sharon enrolled in one of our coaching programs. She learned the
successful principles of the real estate investing business, and in less
than three years, has purchased 17 properties with a net worth of over
one million dollars! Her success was typical of someone who has a
sound investing strategy, not just because she had a few hundred thou-
sand dollars to invest. Many people start out with a decent nest egg and
lose it because they don’t have a plan or squander it in low-yield in-
vestments that take too many years to accumulate the sufficient funds
for a healthy retirement.
You may be thinking, “I don’t have several hundred thousand dol-
lars. How can I get started and be assured of similar success?” You sim-
ply don’t need a lot of money to get started. In fact, most people we
meet have less than $20,000 when they start their real estate investing
careers. In fact, the more cash you start out with, the more you have to
lose, and thus the more “defensive” you have to be in your approach.
“Defensive,” among other things, means being thoughtful, conser-
vative, and not-too-risky in your approach. It means knowing where
you are in the real estate cycle, whether you are in an up or down mar-
ket; you don’t want to sell too early or buy too late. It also means know-
ing how to preserve your cash flow, analyze a deal from all angles, and
run your investments like a business.
If you use the techniques outlined in this book you can be inde-
pendently wealthy in fewer than ten years. Keep in mind that real es-
tate investing isn’t a “get-rich-quick” scheme. It takes time, diligence,
persistence, and good planning. Above all, it takes using intelligent in-
vesting principles.
If you apply what you read in this book, you can be a successful real
estate investor, no matter where you’re starting. When we speak at one
of our seminars, it gives us great pleasure to look at the faces in the
crowd and wonder who will be the next success story. This book shares
the message of intelligent investing. We hope it will have an impact that
will set you in the right direction. We’ve written this book as a resource
you can use daily. Please don’t read it only once and put it away.
Each chapter in this book directs you towards one of the ten prin-
ciples of defensive investing.
FM_FINAL.qxp 3/15/07 3:50 PM Page xiii

I n t r o d u c t i o n xiii

In Chapter 1, you learn what it takes to be a real estate investor: the

virtue of patience. We provide real-life examples that guide you through
the investing process and help you develop the necessary skills to be a
successful real estate investor. Getting rich is a matter of degree. How
rich do you want to be, where do you start, and how do you reach your
goals? We help you answer these questions in Chapter 1.
Chapter 2 discusses in detail the real estate market, how to deter-
mine the market you’re in, and how can you use that information to
profit. Discussions include median versus average prices and what this
means to you. In addition, you learn whether market timing is a good
or bad idea.
Chapter 3 is the essence of the investing world—that is, learning
how to determine the true value a house and sell it for a profit. We de-
tail what it takes to rehab a property, identify which repairs add value,
and determine which improvements and repairs to avoid because they
won’t increase your return on investment. You’ll also learn which real
factors determine value and how they can help you buy a house at the
right price.
Chapter 4 is probably the most important chapter in this book.
You’ll discover how to make your profit when you buy (versus making
a profit when you sell). If you don’t understand what we mean, be sure
to read every word of this book more than once!
Chapter 5 provides insight into where to invest. Do you invest in
your own backyard or in another part of the country? Is location more
important than price or vice versa? We provide specific examples of
the types of projects that are worth taking on and show you how to an-
alyze a deal. You’ll also recognize the certain types of properties that
are more profitable than others—and which properties you should
avoid at all costs.
Chapter 6 discusses the critical topic of cash flow versus cash re-
serves. We detail sources of cash and formulas for analyzing cash flow.
Moreover, if you aren’t starting with much cash, we teach you how to
generate a cash reserve.
Chapter 7 prepares you for exit strategies. The reality is that not all
deals work the way you anticipate so it’s important to have multiple
plans of action and a backup plan.
Chapter 8 gives you details about legal and tax aspects of real es-
tate. You’ll learn simple techniques to keep the profit you earn.
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xiv I n t r o d u c t i o n

Chapter 9 reveals common real estate investment scams and traps

you must avoid, the common myth about “nothing down,” getting cash
back at closing, and other “get-rich-quick” schemes. You’ll identify
these schemes and determine how to protect yourself from unscrupu-
lous investors. We also show you what to look for when researching an
investment club.
In Chapter 10, we provide specific examples of how to treat real es-
tate investing as a business. That includes how to set up your company
and your office, set goals, bring in partners, hire employees, and take
the steps necessary to be a professional real estate investor. You’ll as-
sess your strengths and weaknesses and bring together the important
members of your real estate success team.

The Real Secret to Successful Investing

The secret is there’s no secret. Nevertheless, we can offer a solid
piece of advice based on our years of experience: Take investing one
step at a time.
That means plan carefully, don’t overdo it, and build up slowly so
you don’t get off track. If you were planning to run a marathon, you
wouldn’t just show up for the race, would you? Of course not; you’d
prepare and take it one step at a time. You’d consult with experts, plan
your training schedule, work on your stamina, eat well, cross train,
stretch before and after each run, and build up to the big race.
Writing this book has been a labor of love based on our personal
experiences, failures, and successes. We enjoyed collaborating on the
ideas for this book. We want to share our experience with you to pre-
vent you from making mistakes. Most of all, we want to help make the
investing process easier and more profitable for you.
After we speak in public, we often ask each other, “Who’s going to
be the next successful investor from this group?” Will it be you? If you
apply the ten principles of defensive investing, you’ll change your
mindset about real estate investing forever.
Remember, success is a process, not a place. We hope you enjoy the
process and can benefit from our help to get you to the top—wherever
that is for you.
—Bill Bronchick and Gary Licata
chapter01_v3.qxp 3/15/07 3:40 PM Page 1

C H A P T E R

1
Don’t Try to
Get Rich Quick
“The things that will destroy America are… the love of soft
living, and the get-rich-quick theory of life.”
—Theodore Roosevelt

As we discussed in the introduction, investors should be defensive

in their approach to real estate investing, whether the market is up or
down, good or bad.
To build wealth quickly, the assumption is that one must accept
more risk. This assumption is generally correct, but lowering risk
means more than just doing things more slowly; it means thinking
things through before you take action. The ten principles in this book
determine exactly how you can do that in your real estate business.

Getting Rich in Real Estate Isn’t Easy or Instant

Generally speaking, people want something for nothing. This
statement may sound cynical, but ask yourself these questions and an-
swer honestly:
• Would you rather work more time or less?
• Would you rather have more income or less?

1
chapter01_v3.qxp 3/15/07 3:40 PM Page 2

2 D E F E N S I V E R E A L E S T A T E I N V E S T I N G

• If we can show you how to make more and work less, would
you be interested in hearing how?
Doesn’t the last question sound like a typical late-night infomercial?
This is why advertisers are so good at exploiting human nature!
If getting rich in real estate were easy, everyone would be doing it.
It’s not easy. Many aspiring investors are lured into the world of real es-
tate investing because they see other people doing it and want to taste
a better life. Unfortunately, it isn’t realistic to expect instant wealth
without first investing considerable time and effort. While many peo-
ple have gotten rich quickly in real estate in recent years, more often
than not, it was pure luck. Most investors who succeed in real estate
do so in the long term—through hard work and patience. Those who
try to “crack the code” and shortcut the system are often disappointed.
Another common mistake impatient investors often make: They
learn a few tricks and think success will instantly follow. Another com-
mon mistake is seeing the instant success of someone else and believ-
ing you’ll have the same results. In reality, this rarely (if ever) happens.
These people may have had a good plan, but face failure because they
didn’t give the required effort necessary to achieve the goal. It takes a
lot of work to achieve long-term success in real estate, which is why so
few accomplish it on a grand scale.
Many people start out in real estate investing with great fervor, only
to become discouraged after a few months when they don’t attain in-
stant fortune. They discover they can’t get rich quickly and easily so
they move on to the next investing scheme.
Surprising as this may sound, real estate has a lot in common with
weight loss. In real estate, as in the weight loss industry, everyone talks
about it and many try it, but few experience real long-term success! Both
industries offer thousands of “get rich quick” and “get slim quick” gim-
micks, making billions of dollars in sales in the “getting people to try.”
If you’ve tried to lose weight, you know it isn’t easy. In fact, it’s a
serious challenge. Yet the basic concept is simple: eat less, exercise
more. Even with this approach, most people give up after a few weeks
because they don’t have the discipline or the patience to work consis-
tently at a well-defined plan.
Does this mean that all the weight loss plans you see on television are
a scam? No, most of them will work if you follow their plan. Likewise,
chapter01_v3.qxp 3/15/07 3:40 PM Page 3

1 / D o n’t Tr y t o G e t R i c h Q u i c k 3

most of the techniques advertised on real estate investing infomercials

do work if you work. Admittedly, like weight loss commercials, the re-
sults take longer for some people than for others. The problem is that too
many people are impatient and either give up or, worse, engage in risky
or speculative real estate deals that end up bankrupting them.
The bottom line is that if you set realistic expectations, apply our
principles, have a good plan, and work hard, you’ll succeed.

Start with Realistic Goals and Expectations

Thinking big is great, but we cringe when we hear someone say, “I
want to make a million dollars in real estate in my first year.” Everyone
loves a dreamer, but there’s a fine line between dreams and delusions!
Someone who earns $50,000 a year and has no prior experience in real
estate probably wouldn’t make that kind of money by next Christmas.
What kinds of expectations are realistic for a beginner? The best ap-
proach is to set short-term, intermediate, and long-term goals. Be sure
your goals are realistic, specific, and attainable. For example, your goals
may look like this:
• Fifteen-year goal: Retire with $10,000 in passive income per
month, inflation-adjusted. This may require between $3 and $4
million in free-and-clear rental real estate.
• Five-year goal: Acquire between $3 and $4 million in real estate
in steadily appreciating areas. Buy, fix, and flip five properties per
year at an average profit of $20,000 to replace current income.
• One-year goal: Buy, fix, and flip two properties and acquire
three rental properties to keep.
• Six-month goal: Buy one rental property and one fixer-upper.
Be as specific as possible and take time to do the math. For exam-
ple, if your goal is to retire within 15 years, how much income will
you need to attain that goal? If you need $10,000 per month, will that
require owning and collecting rent on five houses? Ten houses? Will
you be managing that property? If you pay a manager, how will that
affect your bottom line? If you need $10,000 in today’s money, what
will that amount be worth adjusted for inflation? The more diligently
chapter01_v3.qxp 3/15/07 3:40 PM Page 4

4 D E F E N S I V E R E A L E S T A T E I N V E S T I N G

you put the pen to paper—or the fingers to the keyboard—the better
prepared you’ll be.
To avoid setting yourself up for certain disappointment and possi-
ble financial disaster, you must forget the dream of becoming an
overnight millionaire. Instead, focus on the slow-and-steady route, aim-
ing to accumulate wealth one small step at a time, one deal at a time.
(We’ll discuss setting goals in more detail in Chapter 10.)
Most important, be defensive in your approach. Think things
through. Be conservative and cautious while always considering the
risks. Real estate generally goes up and down in natural market cycles
about every seven to ten years from top to bottom to top (or from bot-
tom to top to bottom, whichever way you view it). Could property val-
ues decline after you buy them instead of increase? Could you end up
at the bottom of a cycle when you plan to retire, and how will this af-
fect your decisions? Could inflation be more than you expect? Could
your kids’ college cost more than you anticipated?
When you develop your goals, spend plenty of time. Be sure to look
at the positive and also anything that could negatively impact your
goals. Imagine that you’re preparing this plan for your boss—what
would he or she think about it? What aspects would you need to clar-
ify and present in more detail if you had to “sell” it to someone else?

A True Stor y : Focus on

Quality, Not Quantity

Steve bought 140 investment properties in his first three years of in-
vesting. Each house he purchased had less than 10 percent in equity. He
hoped that appreciating values would be his payoff. Unfortunately, the real
estate market in his city leveled off and he ended up with multiple vacan-
cies, negative cash flow, and financial distress. Steve would have been bet-
ter buying one-third as many properties with more equity while focusing on
quality deals rather than quantity.
chapter01_v3.qxp 3/15/07 3:40 PM Page 5

1 / D o n’t Tr y t o G e t R i c h Q u i c k 5

Developing Skills Takes Time

When you invest in real estate, risk is directly proportional to edu-
cation. Compare this to the stock market where even the most edu-
cated professionals still can’t invest and achieve great returns with any
degree of certainty.
On the other hand, real estate has a higher learning curve than the
stock market, which means you must be willing to invest more time
and resources to get results. Real estate is more like running a business
than managing an investment, so it takes more time to learn. If you’re
hoping for success in real estate (or any challenging field), you must be
prepared to invest time to develop the necessary skills and expertise.
Too many aspiring investors assume they can jump into the fray and
learn as they go. Certainly many people do this, but the stakes are high;
there’s plenty of money to be made in real estate, but there’s plenty to
be lost! More often than not, foolish investors jump into investing with-
out knowing the rules and end up paying an expensive lesson.
At any given time, in virtually every major city across the nation, nu-
merous real estate seminars are offered to guide you through the learn-
ing curve. Seminars run the gamut from affordable to expensive and
from useless to very helpful (and everywhere in between). We recom-
mend that you attend a few reasonably priced seminars; you’ll likely
learn at least a few helpful tips. In addition, this gives you the oppor-
tunity to meet other investors in your area.
How do you know if a real estate seminar is worthwhile? Here are a
few facts to consider when determining whether to invest in a seminar.
• Price—Be cautious of seminars at either extreme of the price
spectrum. If the seminar is free, it’s usually because the pro-
moter plans to make a profit by selling his products to the at-
tendees. If you attend free seminars, be prepared for a sales
pitch for books, CDs, coaching, or other seminars. By contrast,
expensive seminars sometimes leave investors feeling as if they
didn’t receive sufficient material to justify the high cost.
• Class size—Free or low-priced seminars generally require large
audiences to make the event cost-effective for the promoters.
This means it’ll be difficult to ask questions or receive individ-
ual instruction.
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