This post debuts the InfoSeeking4Researchers series! I decided residential real estate would provide a great conversation starter. It appears simple, but is laced with multiple perspectives depending upon organization size, skill levels, prospect capacities and more. As in, a deceptively simple topic!
I have started the conversation here, but I’m expecting you to finish it. Each conversation starter I write will be emailed to InfoSeeking 4Researchers subscribers and posted here on the InfoSeeking blog under the 4Researchers category. You can subscribe to the e-newsletter to get extra tips and resources, or follow the blog category. Wherever you read it, I encourage you to post your experiences, tips, and questions as blog comments so everyone can benefit.
Residential real estate is one of the first things we researchers look for and yet sometimes we overlook the nuanced information it can provide. I was reminded of just how much it can shape prospect strategy as I was reviewing a prospect profile with a new client… but I’m getting ahead of myself. First, let’s discuss presenting the information. Second, I’ll give an example analysis. And third, I’ll start a list of examples that I hope you will add to!
Presenting Residential Real Estate
As the years roll forward, I have moved to presenting more of my researched information in tables. It ensures that no matter who does the work, everything looks the same, and it also helps me remember the pieces we need to check for. My real estate table looks like something like this:
| Property | Year | Valuation |
| [depending on the level, I might include a picture here]
1234 Best Vista Drive, Indian Shores FL 33785
|
2013 | $11 million |
I choose to present an estimated market value, which I round so the end user doesn’t interpret it as an exact value.
- Are you presenting your research in a document or does everything go directly into the database?
- Are there places in your database to include the bullet points above that will print in a database generated profile?
A Quick Analysis
So what do I now know about Mr. and Mrs. Dough?
- They own a big house on the beach.
- They purchased before the real estate market tanked and paid cash (no mortgage).
- They took out a loan during the recession, which happened to coincide with when Mrs. Dough launched her new and very successful business.
And that means…
- They already had wealth when they bought the house and leveraged that wealth during the recession to launch a business when the business market was quiet. I’d say they likely have significant capacity.
Other examples of things I have learned through real estate
- When the property is owned in a trust named after the prospects and listing them as trustees, I want see if the trust name on the deed record states exactly what kind of trust it is. Holding the family home in trust suggests to me that they have done some estate planning, which the gift officer will want to take into consideration.
- One prospect held a property in trust in his name and yet he was living in a retirement home. When this was pointed out to the gift officer, he told me that he had heard the prospect’s daughter was having troubles and that this house was likely bought for her use. So it’s not likely the property is going to factor into a gift, is it? Good to know.
- When a prospect has owned the property 10+ years and still resides in the home, even if only part-time, it suggests a different approach to life and wealth than someone who buys and sells the primary residence as often as you might sign a car lease.
- When there is a mortgage, and especially if it is a large one, it suggests that there must be a certain amount of income to support those mortgage payments. A mortgage calculator is a handy tool to get an estimate.
- There’s a big difference between a successful real estate investor who sits on vacant land through the downturn (because she paid cash) and one who is stuck holding vacant land (because she has debt)!
Now it’s Your Turn!
Our profession is rife with experienced, intelligent and very creative people who also share. Won’t you share too?
- Do you have examples to share like the ones above?
- What nuggets of info routinely gets ignored, but shouldn’t?
- Or should we spend less time on real estate and more on something else?
Click on “Leave a Comment” below or any of the social media buttons.
Jen,
Great pointers for new researchers. Thanks!
Always remember that a home has essentially zero value until it is sold. If it is the prospect’s sole residence, then go light on determining capacity using the homes value.
Generally speaking, mortgages will be given if the buyer can show at least a third of the prospective homes value. Therefore, a $6 million dollar home would require the buyer to show about $2 million in holdings (current or future) in order to receive the loan.
Don’t assume a big house means wealth….there were many foreclosed upon over the past few years.
The debt-to-value ratio is more telling than the overall value of the home.
Glad you found it helpful Jacqueline and thank you for the sage advice Mark!
We put our info directly into the database so that it will print out in the generated prospect profile. But it would add value to the data if we include any notes about the mortgage amount, etc., so that it wouldn’t lead to false assumptions about wealth. Also helps highlight to the DOs that researchers don’t just report data, we analyze it so it’s useful.
Thanks Elaine! The larger the organization the more likely to keep all information in the database. It’s efficient and keeps you primed for data analytics. Did you have to create a place for additional real estate info or was it an easy fit into existing fields?
It was an easy fit into existing comment fields. All we had to do to “customize” was to create a subject index for known assets.
Great post Jen! I especially like the idea of presenting the data in a table so it always looks the same. That makes it really easy to follow, regardless of who is writing/reading the results. Also, in this format you could easily convert it to a format that would allow for easy data mining and analytics/modeling.
It would be great if every nonprofit were storing all information in the database, but that just isn’t reality. I agree, Meredith, that tables do make it a little easier convert or manipulate later. Someday we’ll talk about paper profiles and young’uns will look at us like we have three eyeballs, but not today.
Great suggestions!
Jen, I’m with Meredith, great post, and the consistency is beautiful. I always like to poke around for additional sources to determine the value of the house. Sometimes that means a quick Zillow search, other times it means determining the multiplier used in the county/city. Real estate can be very misleading if an area uses a high multiplier to determine the value of a property, or if it’s located in California due to Prop 13.
When I started in research years ago, due either to resource access or economic situations which have since changed or both, “the number” in real estate was market value. In the last few years, with changing economic realities and now being in Florida and dealing with a lot of prospects in states hit especially with the real estate “bust”, I include any loan/mortgage information as well, and use that information in figuring capacity ratings. It can make a significant difference (in more than one case within the last year, I’ve had “high-capacity” prospects who turn out to be significantly underwater). Presenting the data to fundraisers in such a way that they can see the differences and painting a likely picture of “what we know about John/Jane Doe” is vital, especially if we’re “fleshing out” some data from electronic screenings–the screening does indicate that Mr./Ms. Doe has $10M in real estate, but if research indicates that s/he also has $20M in mortgages, the view of the prospect changes dramatically!
Really good commentary! A fellow Floridian wrote some relevant commentary on his blog too. Check out David Lawson’s talk on “unstructured data” here: http://www.workingphilanthropy.com/2013/06/12/962/ Because typically our databases aren’t doing a good job of helping us present the nuances of market value, assessed value and “under water” – am I right? !!
A prospect research colleague shared some specific info in a public forum about NYC real estate that I thought I would share with you. Cooperative condominiums/apartments in NYC are tricky. Because owners purchase “shares” in the cooperative, ownership isn’t recorded as a real estate deed. On top of that, they aren’t assessed at their market value or a percentage of their market value. They are assessed as if they were income-producing properties by comparing them against comparable residential rental buildings. That produces values that are not meaningful valuations of the property. So what to do?
My colleague suggests using purchase price (adjusted for the increase/decrease of property values in similar neighborhoods, or comparable sales, both within the same building and in other buildings. You might also consider that generally the higher the floor, the higher the market value.
Check out these resources and articles:
millersamuel.com
http://www.streeteasy.com
http://www.cityrealty.com
http://www.nytimes.com/2006/12/31/realestate/31Deal.html?pagewanted=all&_r=0
http://www.commongroundnyc.org/nicemess.htm
Great informative and perhaps more importantly *analytical* post.
Just a question related to the mortgage calculator…my initial thought is that the presence of a mortgage is one of three things:
1) Negative – if an individual doesn’t have cash to pay of their debts, how can they make a major gift? I suppose one could say their ‘stretch’ gift is still a long way off but perhaps a smaller one is available.
2) Positive – they have an income stream that can support the mortgage, whatever the size is, so perhaps they can spare some for us
3) Neutral – perhaps the negatives and positives ‘cancel out’ each other
I’ve not dealt with the finer points of mortgage info much as we don’t have access to it here in Australia, but we do touch on it with WealthEngine/Dataquick searches…I’ve really only noted ‘mortgage free’ types and shrugged at the ones who still have a mortgage.
So I suppose my question is – are mortgages worth taking into account outside of those ‘under water’? Would anyone use the mortgage calculator as part of a capacity rating (seems like interest rates etc are unknowns).
Great question Stephen! I’m hoping others chime in, but there are times when it is “cheaper” to borrow money – take out a mortgage – than to use cash. Recent volatility aside, I have seen times where someone with great wealth still uses mortgages. Some people with significant wealth may find themselves “cash poor” for various reasons and when the cost to borrow is very low it is a good option. Other times I’ve seen prospects with inherited money use mortgages as a “bridge” until they get a distribution. And still other times, I have found home equity loans to be a negative or caution when there is a revolving credit line, which most likely use appears to support an entrepreneur’s business. I have absolutely used estimated income based on mortgage amount (together with demographic info) when I have “middle-class” prospects with little else to go on. Mortgages are just one piece in the whole picture – and happen to be one readily available piece! Any other thoughts out there?
Regarding mortgages as an indication of cash: I find the existence of a mortgage to be neutral in general. High net worth individuals are likely to have their assets actively managed, and a mortgage allows them to invest the cash at the same time as the property is appreciating (unless it’s 2008). Financial types nearly always have a mortgage, in my experience.
But as Stephen noted, the amount of cash paid in the first place for a property can be very interesting. When a young person pays a lot of cash for an extravagant home, it could indicate that they have family money; and if a prospect takes out a jumbo loan when rates are close to the annual effective discount rate (meaning they won’t earn more investing than they are paying in interest), that would make me question their cash flow.
Thank you for chiming in Jon! You said that so well…
Thank you very much Jen and Jon!
I think I will leave the presence of a normal (i.e. not underwater) mortgage out of my capacity calculations…except for certain aspects (like paying up front) which I would keep in the wording around the rating as a possible lead for the MGO to possibly tease out later. The “revolving credit line” would be of interest too I think, but hard to take into account re the calculations.
Thanks again and sorry for the delay in conveying my gratitude – I assumed I would get a notification when there was a reply, for some reason.