City Real Estate. City Real Estate Values. Part 3

Description

This section is from the "Investment And Speculation" book, by Louis Guenther. Also see Amazon: Investment And Speculation.

City Real Estate. City Real Estate Values. Part 3

It is well for the purchasers of the securities of the numerous real estate concerns to insist upon a complete statement, not only of their financial condition, but of the location of their properties. In recent years quite a number of these concerns have sprung up, some of which have since gone under as a result of their mushroom character. Their real estate holdings may be situated in the outlying suburbs, at a considerable distance from transportation facilities; their value may also be inflated, as there is no check upon their appraisals where no independent estimate has been made by competent real estate experts.

Some of these concerns, with an idea of inspiring confidence, have christened their securities with high-sounding titles such as "participating bonds," "mutual profit-sharing bonds," and the like. Names do not impart security. A number of such securities, after a personal investigation, have been found as hollow as a bell.

Leasehold Bonds

Leasehold bonds are the latest form of real estate bonds. So far, they are a security largely confined to New York City, where property has become too valuable for their owners to sell it outright.

The Astor, Goelet, Rhinelander, and other large New York estates owning valuable tracts of land in the heart of the city follow the system of leasing their property for a term of years at a stipulated annual rental. It is arranged with the leaseholders that the improvements they make are to be turned over to the owners of the property at the expiration of the lease for an agreed sum. Leaseholds are transferable in the same manner and form as are deeds. Bonds are also issued against these leaseholds, but for the protection of the investors they should mature before the lease expires, and there should be set aside a certain portion of the revenues each year as a sinking fund to retire the bonds when they fall due.

The outright purchase of real estate must be largely determined by location and the income it produces. No general rule can be laid down. However, it is advisable under all circumstances, before buying real estate to make a personal investigation of the property or employ a capable, experienced, and honest real estate agent to make an appraisal of its value. Where this is done, there is little danger of making any serious mistakes.