New-York tribune., 1920-12-19
Reasonable Return From
Realty Is ll.8 Per Cent Net
Economist LiI1ens Real Property PERSONAL and
Applies to 1t Same Eeagent That Purchasing
Public Gives Securities to Arrive at Fair Rental

In booklet just issued by the
American Trust Company w. Burke
Harmon tells what constitutes a rea-
sonablc rencal. lie bases his CeGuc-
tions on the earnings of industrial
companies and the income demanded
hy the purchasers of securities OF
these companies.
The booklet is the second issued by
the trust company on real estate sub
jects The first booklet, also written
by Mr. Harmon. ana Yves the renting
and housing situation. In it he shows
that the shortage of homes cannot be
made up until 1927.
"a great deal of discussion has aris-
en- as to what constitutes reasonable
rent" writes Mr.. Harmon. "The pas
sage of the recent rent laws at Albany
has left certain discretionary powers
with the courts to fix rents, which, II
constitutional, makes this question Of
paramount interest not only to owners
Of real estate. but to all who pay rent
as we'll. and it becomes vitality impor-
tant that a sane and scientific method
cf determining what constitutes a rea-
sonable return on real estate be ar
rived at if the whole fabric of values
is not to be weakened and undermined.
"a rental that viii yield a reasonable
return on the value Of given piece of
real estate can only be determined by
n considerat on Of and comparison with
the return on other forms of invest
ment of corresponding attractivencss
Capital seeks the ield that yields the
largest returns commensurate with the
risks involved and the amount Of care
entailed in the management of the
investment
Real estate on the one nanl and
personal property as represented Ivy
stocks and bonds on the other are
constantly competitive for surplus cap
ital. The present superior attractive-
ness Of the personal property invest
mo ~tccks and bonCs), from the
pont of view of large earnings, of
markctablity and of freedom from
managerial care, not only makes large
drafts on the surplus supply Of capital,
but Will drain investments already abb
sorbed by real estate, unless the earn
ing from real estate is permitted to
adjust itself to accord with economic
laws.
Realty Compared to Stock
The ownership Of real estate is
directly comparable to the ownership p
clear real estate is similar to the stock
in corporation without bonded or
Fer in e5,odncss Equities in real
estate subject to mortgages may be
compared to stock in corporations with
underlying obligations.
The market price of stock is the
pubic measure of the value of the
earnings Of the corporation influenced
by the character Of the assets, type of
management, etc. This is ordinarily
easily ascertaincd if not publicly
quoted
Real estate is subject to exactly
the same market laws as other securi-
ues-lts value can be approximatcd
Dy applying the same processes of
reasoning as nrc utilized in the case
OF personal securities.
Othcr things being equal, the mar
kct price Of stock will be stabilized
at point where the income derived
! rom 1T, by common consent, appeals
10 investors as constituting a reason
aD!e return ON the investment re-
CURED for its purchase. BY applying
'hc same rcagcnt to real estate we
can arrive at data on parallel lines
mat should be conclusive in furnish /
ing us the standard of return by which
10 measure rcul estate values Mt
gwen time
Real estate and corporations ars
usually subject to cncumbranccs in the
shape or mortgages. bonds. notes, pre-
'erred shares, etc. In establishing the
amount or percentage Of earnings
necessary to maintain a given value
'or 'he STOCK equity in IA number of
corporations IT. Is far more convenient
In 1Hct' almost necessary--to elimi-