Jim Gillespie is the chief operating officer for Coldwell Banker, one of the largest real estate firms in the country. While acting and observing on a corporate level, Gillespie expressed strong support for the kinetic and thriving real estate market while visiting Jacksonville last month for the Walter Williams Coldwell Banker annual banquet. Gillespie met with staff writer J. Brooks Terry during his visit to discuss the real estate industry.
Question: It seems that everyone is talking about how good the real estate market is right now all over the country. Is it really that good?
Answer: It is unbelievably good. In fact, the market is in — about — its eighth year of being a really strong bull market.
Q: What are some the factors behind that?
A: There are a lot of factors. Obviously, interest rates are at a historic low. That drives an awful lot right there. Also, the demographics are all aligned and have been aligned for several years. When I speak of demographics, I’m talking about the Baby Boom generation that continues to buy homes and, also, continues to buy up. The Baby Boom generation is also buying a lot of second homes. The Baby Boom generation is getting close to retirement. Some of the ones that have already retired, it’s not like when they’re parents retired and bought down in retirement homes. They either stay at the level they are, or they’re even buying up. Their children, the Echo Boomers, are just now getting into the market. That generation, which are in their late 20s and early 30s, has a lot more disposable income than their parents or their parents’ parents had that the same age. More importantly, we have a lot more single heads of households now. Minorities are growing at a fantastic clip today. More legal immigrants are moving into the country who benefit our economy. They save their money and purchase homes because its a big deal for them. You’ve got all those things rolled into one making it one heck of a bull market.
Q: What about the uncertainties of the stock market? Do people want to invest their money in something more tangible right now?
A: That has a lot to do with it, also. The fact that the equities are down in the stock market has an effect. A lot of people are pulling their money out of the stock market and putting it in CDs and money markets and things like that, but a lot of other people are investing in real estate. The government gives you such outstanding writeoffs for that sort of thing. Everything that you touch with a house is a write-off for an investment property. Plus, the government lets you depreciate the value of that property. That depreciation is a paper loss to the investor but when they file their tax returns, that paper loss either turns into additional dollars that they get back or less dollars that they, ultimately, have to pay.
Q: In regards to the next few years, is the future for real estate just as bright?
A: The future is bright because many Baby Boomers still have not reached retirement so they’re still in their peak home buying time. Like I mentioned before, their children are just now getting into home buying so that’s an all new market coming up. Plus, you’re seeing tremendous appreciation over the last five or six years so it’s an investment that’s hard to beat.
In the stock market, where if you invest $100,000 in stock, you have to pay $100,000. In the real estate market, if you want to invest in a $100,000 in a home you can buy a home for five, 10 or 20 percent down. If the value of the home appreciates, so does your investment. The obvious negative, if it even is a negative, is that you can’t just turn around and sell your home without paying commissions. But unlike a stock purchase, if you invest in a home you’re probably going to be staying with that property for three, five or seven years. So even discounting the cost to sell the property, you’re still leveraging the money that you’re putting into it. You walk away after those six or seven years with the potential of doubling your money. Even if the value of the property doesn’t go up that much, the money that you’ve invested, say $20,000, could, in essence, greatly increase. It’s a fantastic investment. Even if you live in the home, you still write off interest and taxes unless you borrow more than a million dollars and not too many of us can even do that.
Q: Is there a smarter way to go about investing that everyone may not know about?
A: I really feel that the smartest way is to contact a real estate sales person and ask them about the specific benefits of purchasing a home either to live in or for investing. When I sold real estate quite a few years ago, I would conduct seminars for my customer and clients to explain all the great write-offs and tax advantages that can accompany a real estate purchase, whether for an investment or to live in.
Q: What should someone be looking for when looking at investment properties?
A: You need to remember that it’s not a purchase that you’re going to be living in so you need to take the emotion out of it and you need to take a look at factors that would affect your investment. How old is the roof? What type of construction is it? Is it brick? How much wood is there? How much will need to be repainted? How old is the furnace or air conditioning unit? Things like that.
Don’t get involved in the emotion if you were going to be living in the home yourself. Don’t worry if the view from the kitchen isn’t as pretty as you would like. Look at it like an investor. Look for areas that have the potential for appreciation.
Q: Any caveats?
A: I’ve invested for 28 years and there are none that I can think of. It’s a tremendous thing. Someone may ask, “What if you’ve depreciated the value of the property?” Well, if you depreciate property out, the government also issues a what is called a 1031 tax free exchange where you can sell your piece of property and have it in an escrow. You’ll have to go through an attorney or through a title company. In a specific amount of days, you’ll need to identify a new piece of property. From there, you’ll have 180 days to close on it. You will not owe any taxes. You can start to depreciate the difference from the basis to the new property. It’s a great situation.
Q: It’s hard to lose if you react smartly and invest wisely?
A: It’s very hard to lose.
Q: Are you in Jacksonville often?
A: I usually come down for this meeting and sometimes maybe one other time in the year when I can.
Q: Any impressions of the city?
A: It’s a beautiful city. I’ve been coming here for years now and I think it’s just gorgeous. I love it. The weather alone is fantastic. I’m in New Jersey so we’re getting pretty tired of the cold and the frost that comes with it. Coming here is great away to get away from all of that for a little while.