Is Investing in Real Estate Safe and Profitable? Anthony Galeotafiore Weighs In

Anthony Galeotafiore
Jul 24, 2019

Real estate investing is one of the pillars of the investment world alongside stocks, bonds, and commodities. Each of those carries varying levels of risk, though real estate throws some additional wrenches into the equation by being far less liquid than other investments and requiring the investment to be actively managed.

Due to those added wrinkles, real estate investing does have one of the most attractive risk/reward profiles of any investment according to Anthony Galeotafiore, a real estate developer, investor and consultant from Bethpage, New York. The Founder and CEO of AJG Capital Group adds that real estate investments can also be highly leveraged, allowing the investor to start generating sizable income almost immediately from a modest initial investment.

So while the annual income generation from real estate may not be much greater as a percentage of the overall value of the property than a high-yield dividend stock or REIT is compared to the overall value of the shares (with 5–10% being a solid rate), the fact that real estate can be highly leveraged means the income can amount to 40–50% or more of the initial investment compared to that same 5–10% rate for stocks.

That income can then be reinvested into additional properties using the same leverage tactics, allowing an investor to begin building a sizable real estate portfolio that is appreciating in value and essentially paying for itself even as it’s producing steady streams of income.

Needless to say, real estate investing can prove to be very profitable very quickly with the right approach.

How Safe is Real Estate Investing?

When considering the long-term history of the overall real estate market, investing in property also appears to be quite safe. Since the end of World War II, the median price of a U.S home has jumped 80-fold, creating value comparable to the stock market, which has averaged annual returns of about 10% since 1950.

That said, Anthony Galeotafiore cautions that individual investments are always fraught with more risk than larger sample sizes. Just as investing in a single stock is highly risky regardless of what the overall market is projected to do, so too can an investment in a single property turn out poorly based on any number of factors, regardless of what the overall real estate market is likely to do.

Among the broad real estate risk factors is the state of the local market, which could be overcooked compared to the national average. Recent examples are Seattle and San Francisco, where home prices have flatlined over the past year after rapid growth. Buying into a market bubble could set the investment timeline back by months or even years.

Tenants also present an unknown risk factor for property investors, with bad ones potentially eating up resources and profits for months before they can be sent packing.

But the greatest risk is from the individual property itself and its suitability as a profitable long-term investment. The wrong property could be a money pit, requiring continual maintenance and upgrades to keep it competitive or complying with updated bylaws and standards which end up sapping its profit potential.

Source: Medium.com