[The Principles of City Land Values, by Richard M. Hurd, president the Lawyers' Mortgage Insurance Co., New York, 1903, contains numerous illustrations, maps of cities, diagrams, and comparisons of values based on wide and painstaking study. The extracts which are printed in this book with the permission of the author, are from the latter part of book, and give the general conclusions (page 122).]

Basis of gross business rents. While gross rents are fixed by competition, the question arises, How do bidders determine what they can pay ? The basis differs radically between business property which earns income for the occupant as well as the owner, and residence property which for the occupant consumes income1 only.

The gross rents of business property are gaged from the economic standpoint, these being in the long run the normal proportion of what property can earn for the tenant. The proportion of gross receipts which a shopkeeper pays as rent varies according to his ability as a tradesman, the character and class of his business, and the location, a fair average being from 20 to 40 per cent. The better the location for retail trade, the higher the proportion of receipts paid for the rent. For retail trade the location and the consequent advertising perform the vital function of selling the goods, and the shopkeeper can largely devote his energies to selecting what the people want. Similarly, though in a less marked way, prominent office buildings help to advertise the business of their tenants. On the other hand, mercantile property not

1 [Pecuniary income is here meant. Residence property occupied by a tenant earns pecuniary income for the owner, and yields to the tenant an income of uses which his money buys.- Ed.] on traffic streets, wholesalers, etc., pay but a small proportion of their receipts as rent, the saving, however, going to the hire of drummers to sell goods.

The gross rents of residences. The gross rents of residences represent the proportion of income which various classes can afford to pay for house rent. While the return for such expenditure is chiefly the satisfaction of suitable surroundings, social ambition influences all classes to live in the best neighborhoods within their reach. The proportion of [house] rent to income varies from 15 or 20 per cent among the wealthy, up to 25 or 35 per cent among tenement dwellers.

Operating expenses. Taking as gross rents the amounts actually received and not the full rental value, from which an allowance for vacancies must be made, we may note first the great difference in the proportion of operating expenses according to the class of property, this varying from 10 per cent for one- or two-story brick store buildings, up to 50 per cent for office buildings or apartment houses. Explaining this difference is the fact that in office buildings and apartment houses, from 20 to 25 per cent of the rent represents the payment for services, such as light, heat, elevator, janitors, cleaning, etc. If from gross rentals all service charges are deducted, the other charges, taxes, insurance, repairs and rent collecting, approximate in percentage quite closely in all classes of property.

Average taxes. Average taxes vary somewhat in different cities. Taxes on individual properties in the same city vary more sharply owing to irregular assessing by tax officials. Figuring the average of a large number of American cities, taxes range from 1 1/4 to 1 1/2 per cent of actual value, the chief exceptions being in Washington, where taxes amount to 6/10 per cent (the United States Government paying half the taxes), and in San Francisco, where taxes amount to 8/10 per cent (the city having no bonded debt). The chief errors of assessors come from their overestimate of external appearances and from the habit of following former assessment rolls, so that quite uniformly property which has been valuable but which is deteriorating is assessed higher than property in the line of growth and yielding larger rents.

The cost of insurance. The cost of insurance is usually so slight that it can be disregarded in making up the budget of annual expenses. Rates range from 15 cents to 30 cents per $100 per annum for first-class risks in the larger cities, 50 cents to 75 cents per $100 on first-class risks in the smaller cities, $1.00 per $100 on stores and office buildings in the smaller cities, and so on up.

Repairs. Leases vary in their provisions as to payment for repairs by landlord and tenant, but if paid by the tenant the rent is proportionately reduced. Average repairs vary from one-half of 1 per cent of the value of the building per annum in the case of the highest type of fireproof buildings, 1 per cent for ordinary mercantile buildings, 2 per cent for older property or that of cheaper construction, 3 to 4 per cent for old tenements, and so on up in proportion to the age, character of construction, and lack of care of the buildings.

Cost of rent collecting. The cost of rent collecting averages from 2 1/2 to 3 per cent of the rent receipts in the larger cities, according to the class of property, and about 5 per cent in the smaller cities, according to the class of property. Owners who are competent to manage real estate may save agents' commissions by so doing, but instances are not uncommon, especially as to large business property, where owners managing their own property lose their time and from 20 to 30 per cent of the income which an expert rental agent could have obtained.

Operating expenses and net rents. An estimated scale of proportion of total operating expenses and net rents would be as follows, the cost of services where rendered, as in office buildings, apartments and some tenements, being included in expenses:

Expenses and net income. It is clear that the lower the cost of the building in proportion to the value of the land, the nearer the income approaches to pure ground rent, against which the sole charge is taxes. On the other hand, the more expensive the building the higher the maintenance cost, owing both to the greater number of services rendered and to the higher standard of accommodation. Since the operating expenses of a building, whether fully or only partly occupied, vary but slightly, the larger the proportion of expenses to gross rentals the more marked will be the rise or fall of net rentals as gross rentals fluctuate. Ordinarily, expensive office buildings are properly located, the chief errors being in the erection of expensive buildings in small cities, or in poor locations in larger cities. When hard times cause a sharp drop in rents in the smaller cities, instances have been known of the upper floors of such buildings not earning sufficient rent to pay for the mere services rendered, so that it would pay for owners to close the buildings above the ground floor, even though the ground floor stores are in active demand. The danger to owners of heavy fixed charges is shown in the following table [somewhat abbreviated]: