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Real estate record and builders' guide: v. 18, no. 458: December 23, 1876

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Real Estate Record AND BUILDERS^ GUIDE. Vol. XVIII. NEW YOKK, SATURDAY, DECEMBER 23, 1876. No. 458 Published Weekly by ^^t §leal Estate %uoxti %%BQtmixan, TERMS. OjVE year, in advance....$10.00. Communications should be addressed to C. MY. SAVEET, Nos. 345 AND 347 Broadway. THE CONDITIONS OF REAL ESTATE INVESTMENT. To the late AVilUam B. Astor has been attribu¬ ted the remark that "it requires the highest order of corn-age to invest in and carry real estate, as periods of depression are certain to occm- in its history when it is utterly unsalable—can scarcely be given aAvay—when the revenue derived from it barely suffices to pay its current expenses; but, notwithstanding, in the course of twenty years the permanent increase in its value more than compensates for these tempoi-ary draw¬ backs." This pithy sentence epitomizes the whole subject of land investment and lays bare as with a master's hand the deepest intricacies of this vex¬ atious and baffling problem. It behooves us to ponder Avell this deliberately uttered conAdction of one of the most sagacious and successful managers of estates that our city has ever produced In the Ught of its compact wisdom we can readUy discern the quaUties whicli should distingiush the successful real estate in¬ vestor, namely—courage, capital and endurance. Courage guided by clear foresight and restrained by sound judgment; capital in ready money suf¬ ficient for the investment, and in reserve to pro¬ tect the investment when made; endurance, or grit to stand undismayed the shock of panics and re-vulsions. In the nature of the case, real estate is such a stoUd and immobUe commodity, that we wonder it is ever deemed a fit subject of quick specula¬ tion, and is not always regarded in its true char¬ acter as a fixed and rarely negotiable investment. Its system of titles is intricate and obscure; a puzzle and a mystery to the ordinary lay mind, necessitat¬ ing invariably the employment of a sort of legal mid-wife to insure its safe deUvery;- Conveyances In them simplest forms are clothed Avith such an array of solemn ceremonial and costly prelimina¬ ries as to utterly beAvilder the untutored investor. The hypothecation of these titles for the purpose of loans is made so tedious, uncertain, and withal so frightfuUy expensiA''e, that one experience usu¬ ally suffices for the prudent man of business. Methods of negotiation for its ultimate disposal or sale are so tortuous, unreliable, and difflcult of successful consummation, that an active and brisk market in real estate is the exception and not the rule. These inseparable conditions unmistakably chai-acterize and detei-mine real estate as a per¬ manent investment. In this Ught we now propose to regard it, and to deduce from our study and re¬ flection, the conditions which we regard as funda¬ mental and cardinal in its successful cultivation. 1. Loimiess of Cost.— A/VhocA^er invests in real estate at high prices coui-ts disaster from the be¬ ginning. The comer-stone on which successful i-eal estate investors must stand, is that of actual lOAvaess oi cost. We draw a distinction, here be¬ tAveen actual and relative lovmess. Relative low- ness is thus defined: When Fifth avenue lots were seUiiig at $60,000 and $80,000 a-piece a deduc¬ tion of tAventy-fiA'^e per cent, would then have been deemed a temptmg mducement, and have constituted relative lowness of price; but it can¬ not be denied, in the light of subsequent events, that even such an ample reduction would have faUedto render the investment pecuniarily suc¬ cessful. YYe therefore propose to draw a deep line of demarcation between relative loAvness, which depends upon ephemeral conditions of the market, or upon the fleeting basis of personal opin¬ ion, and actual loAvness which is founded in the immutable natm-e of tilings. In the case of improved property, this actual loAvness wiU consist in such a purchase price that the rents likely to be derived therefrom for a period of some ten or tAventy years, aUowing for all the vicissitudes of business, vrill constitute a fair income or return upon the money invested. In the case of vacant property, this actual low¬ ness means such a price as wiU admit of carry¬ ing the property until ready for improvement, and to which may be added a moderate annual increment of profit—along Avith the usual charges for taxes and assessments, and stiU result iu no greater aggregate of value than a prudent buUder would be wUling to pay in the Ught of his business experience, or as would enable the OAvner, after improving the property, to derive from it an adequate and remunerative income. In determining the line between this actual and relative lowness of value, shrewd and subtle judgment and extensive knowledge are reqmred, and in its determination nothing short of the amplest experience and most careful refiection AvUl serve. 2. Freedom from Mortgage Debt.—^We do not here propose to enter into any disquisition on the natm-e of mortgage debts, or upon the perils and disadvantages of the credit system ; these sub¬ jects are now being too AdAddly and painfully exemplified in events of daily occun-ence in the real estate market. "Live within ycm-means," "Pay as you go," "Owe no man anything" and other kindred maxims are being enforced, Avith emphasis, just now, upon the minds of aU classes of business men. We simply Avish to consider this topic in connection with successful land investment. We are prepared to lay dovm as another fundamental principle, that, tb be a som-ce of satisfaction and comfort, as well as profitable income, real estate should be abso¬ lutely free from mortgage debt; or, if incmn- bered at all, it should be for so small a percent¬ age of its real value, that under aU conditions and circumstances the mortgage could be re¬ placed, without difficulty or embarrassment. The investor of margins, over and above exces¬ sive mortgage loans, is taking a bond of fate, and invoking the maUgn influence of an interest account, Avhich AviU eat like a canker. In the case of vacant, unproductive property, it is altogether unaccountable by what sort of delusion or haUucination men can be induced to give out their mortgages, usuaUy bearing the highest rate' of interest, with any expectation that the increnient in value can possibly keep pace Avith the accruing interest of the mortgage. If men would pause for a moment's reflection, before entering into these pecuUar contracts, they would comprehend that it is a rare and excep¬ tional investment which can be made to pay as much as seven per cent., annual interest. When improved property is heaAoly mortgaged, it usuaUy results in the owner becoming the mere agent or manager for the mortgagee and for the city corporation, having Uttle or nothing out of the rental income left in his hands, after paying the cost of necessary repairs, interest on his mortgage and the claims of the city, in the way of taxes and assessments. To enjoy its highest advantages, and to derive its fuUest benefits, it is necessary to hold real estate, whether improved or unimproved, absolutely free and clear from mortgage indebtedness. 3. Freedom from Arrears of Taxes and Assess¬ ments.—It is sufficient commentary upon the neg¬ ligent habits mvestors are apt to contract to say, that the last legislature was called upon to enact a special statute, having a limited effect in miti¬ gating the burdens which have faUen upon de¬ linquent investors in the accumulation of unpaid taxes and assessments. That so large a number should have f oimd themselves in arrears, and so pressed in this particidar as to require the inter¬ position of the strong arm of the law for the'r reUef, is a sad criticism upon the unfitness of many who essay the task of real estate investment. The law referred to, arbitrarily postpones the coUection of certain taxes and assessments be¬ yond the term Avithin which, othervtdse, payment might be compeUed; and also reducing the rate of interest on these arrears from twelve and fourteen per cent, to seven and eight per cent., provided advantage is taken of the leniency and grace which the statute extends. A superficial in¬ sight into the books of the various coUectors of taxes and assessments, would furnish sufficient elucida¬ tion of this topic, and enforce the principle as one of paramount importance, that for satisfactory and successful investment^ real estate must be kept clear of taxes and assessments. Besides the heavy burden, which several years aggregate of. these charges anM)unt to, they ordinarily carry a default penalty of twelve and fourteen per cent., per annum, thus sweUing the total of arrears with a rapidity and volume which are scarcely real¬ ized, or conceived of, by the delinquents. There are but few properties in the city which would not be heavily incumbered by the failure to pay these charges, say for a period of five years. 4. Permanence of Holding.—^In our present "view of the subject, avc must dismiss from our minds aU idea of quick turns in real estate. If those per¬ sons, who enter upon real estate ventures, as they seek Wall street for a flyer or a flip in stocks, would pause to contemplate the possibUity of haAang to wait a number of [years for a re¬ turn of their capital, and extrication from the speculation, we doubt not they would be deterred from embarking. It is altogether foreign and inimical to the true nature of real estate invest¬ ment, that it should be contemplated as of short duration; ordinarily the very fact of a sale hav¬ ing been recently effected in real estate, will I avert shrewd and wary buyers from seeking to