The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1920-12-24
up until 1927.


! arisen as to what constitutes a rca-
! sonsble rent" writes Mr. Harmon.
/ The passage of the recent rent laws
at Albany has left certain discT elton
airy powers with the courts 10 m
renth, which, II constitu .ional, makes
this question OF paramount interest
| not only to owners of real esta.., but
to all who pay rent AS well. and II
becomes vitality important that sane
and scientific method OF determining
what constitutes a reasonable return
en- real estate be arrived at II the
whole fabric Of values is not to be
weakened and undermined.
RENTAL YIELD.
"a rental that will yield a reason
able return on the value of a given
piece of real estate can only be de-
tcrmined by a consideration OF and
comparison with the return OF other
forms OF investment of corresponding
Attractiveness. Capital seeks tn. field
that yields the largest returns COM
mensurate with the risks involved
and the amount of care entailed in
the management of the investment.
Real estate on the one hand and
personal property as represented by
stocks and bonds on the other are
constantly competitive for surplus
capital. The present superior attrac-
tiveness OF the personal property in
vestment (stocks and bonds), from
the point of view of largo earnings,
Of marketability and Of freedom from
managerial care, not only makes
large drafts on the surplus supply OF
capital. but will drain investments al.
ready absorbed by real estate, unless
the earning from real estate, IS per-
mitted to adjust itself to accord with
economic laws.
REALTY COMPARED TO STOCK.
The ownership OF real estate Is
directly comparable to the ownership
OF stock in a corporation. Free and
clear real estate is similar to the
stock in a corporation without bonded
or other Indebtedness Equities in
real estate subject to mortgages may
be compared to stock in corporations
with underlying obligations.
THE market price OF stock Is the
public measure of tho value Of the
earnings of the corporation Influenced
by the character OF the assets, type OF
management, etc. This Is ordinarily
easily ascertained ~ not publicly
quoted.
Real estate is subject to exactly
the same market laws as other securi-
ties--its value can be Appropriated
by applying the same processes OF
reasoning as are utilized in the case
of personal securities.
"Other things being equal. the mar
ket price Of stock will be stabilized
at a point where the income derived
| from IL, by common consent, appeals
to investors as constituting reason
able return on the investment re-
quired for its purchase. BY applying
the same reagent to real estate we
can arrive at data on parallel lines
that should be conclusive in furnish
Ing us the standard OF return by
which to measure real estate values
at given time.
NET EARNINGS.
Real estate and corporations are
usually subject to encumbrances In
the shape of mortgages, bonds notss,
preferred shares. etc, In establishing
the amount or percentage OF earnings
necessary to maintain a given value
for the stock equity In a number OF
corporations II Is far more convenient
in fact, almost necessary--to ellml-
nate tho consideration of encuc-
! ORANGES. Combine tho underlying Sc
curities issued by corporations With
the common stock, and add TO earn
ings the interest paid thereon. DIVIDE
the total net earnings thus determined
| Dy the total capitalization OF tno CoT-
poration (mado up of bonds, notes.
preferred and common stock), and the
result Is tho percentage OF earnings
OF the corporation ms II IL were free
and clear of all Indebtedness
THE market price of the common
stock will furnish n means OF deter
mining n reasonable return based on
| public opinion, which Ia the deciding
| factor In all matters OF finance,
with respect to real estate, tho
same result can be obtained by ellmi-
mating the mortgage indebtedness add
! capitalizinB the mortgage into 'he
| equity, by this process you reduce
! real estate and corporation securities
/ to the same common denomination And
/ formulate scientific basis upon
which to arrive at a reasonable re-
| turn,
| III this process be accepted as valid,
an analysis OF the net earnings " n
/ largo number OF corporations OF dit
! feront classes and comparison Of
these earnings with tho market value
Of tho etock will give dependable lata