When people come to us for financial investigations, it’s rare that the information they are seeking is right out in the open. But sometimes, the values are not very far under the surface.
When the hints are there, it can be a matter of simple arithmetic to figure out the answer. Other times, you can “back in” to a rough figure based on a bunch of other easily-accessed figures sitting right there on the public record.
- Simple Equation: How much did a house sell for when the price isn’t on the deed?
Some places such as Texas just don’t put property prices on the deed. You can approximate with asking prices in comparable homes. Elsewhere the answer is right there for you.
In California, for instance, everyone pays $1.10 per $1,000 of value when a home changes hands. That’s a rate of eleven one-hundredths of a percent, but easier just to write as 0.0011. The amount of tax paid is on the deed, so if someone paid transfer taxes of $5,500, you divide that by .0011 and see that they paid $5 million.
It seems simple and in retrospect, it is. But try handing an investigator a California deed and asking him to figure out the sales price. Many won’t be able to do it, so for any inquiry with any kind of financial component, they are not the investigator for you.
One thing to add: California deeds (and deeds in many other places) aren’t just sitting on the internet waiting for you to download them. You have to send someone to the county where the property is and get the deed in person.
- Backing In: What are the sales of a private company?
Private companies in the U.S. don’t report sales and profit figures. But unless it’s a perennial money loser, a company should have sales greater than its costs. Figure out what the costs are, and much of the time you can get a rough floor for what the company takes in based on some numbers that are sitting on the public record.
- Rental costs. Say they have a big factory but they don’t own the building. You can find out the square footage of the place they rent from the county assessor. Then online, it’s not hard to find out what the prevailing rents are in that area. Dollars per square foot per year times the square footage, and you’ve got the annual rental bill.
You need to be careful about other tenants. If they share the premises, they don’t foot the bill for all the rent. If you’re on the ground you can often tell how many companies operate out of the building. But if not, Google Maps can show you how many logos are on the building.
This is not a precise figure we’re talking about, just an approximation. But if someone claims they operate a “mom and pop” micro business and you see a rental nut of $2.4 million a year, you can be pretty sure they’re hiding something.
- Payroll costs. That kind of thing isn’t always public, but lawsuits are. We recently looked at a private company that was sued by a fired worker, who said in the complaint how many people worked in his department. We had been wondering whether this was just a small company or something much bigger.
The plaintiff’s single department in the company had 35 people. Even at minimum wage, you can figure that those people cost the company $31,200 each (never mind FICA, disability, worker’s comp and the like). Call it $1.4 million for just those people, not to mention the rest of the staff.
- Connecting the Behavioral Dots: Evaluating Signs of Financial Distress
How are the owners behaving? In a divorce (business or personal), you can expect some people to want to appear judgment-proof or at any rate, poorer than they really are. Big new mortgages can give the impression that someone is not taking enough money out of the business to pay all the bills and therefore has to tap home equity. But what if the big new mortgage comes just as social media reveals a $100,000 trip to Dubai and Morocco, staying in ultra-expensive hotels, all flying by private plane?
We once helped a landlord recover $72,000 from a longtime tenant crying business distress. Once we found that this tenant had recently gotten a bunch of valuable modern paintings out of hock at one of New York’s auction houses, the game was up, and he paid the landlord in full.
It all comes back to looking as widely as you can. While you can’t look everywhere, there is a tendency to limit where you do look for budgetary and time reasons.
Balancing economy with breadth is where fact investigation goes from science to art.