Explaining this difference is the fact that in office buildings and apartment houses, from 20% to 25% 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.
Example of misplaced building. Expensive eleven-story fireproof office building placed about 150 feet off the principal street. Has earned from 2% to 3% net per annum as against a probable 5% if on the best street. Land 60 feet by 62 feet, appraised $25,500, or $425 per front foot for half depth. Building, $160,000. Building costs 6 1/2 times the land, a "top-heavy" investment. Columbus, Ohio.
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 11/4% to 1 1/2% of actual value, the chief exceptions being in Washington, where taxes amount to 6-10% (the U. S. government paying half the taxes), and in San Francesco, where taxes amount to 8-10% (the city having no bonded debt). The chief errors of assessors come from their over-estimate 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 is usually so slight that it can be disregarded in making up the budget of annual expenses. Hates range from .15c. to .30c. per $100 per annum for first-class risks in the larger cities, .50c. to .75c. 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.
Rentals on traffic street $11,400 versus $600 on side street, or nearly 20 to 1. This illustrates the severe drop in rentals and values off from a traffic street. (In the present instance partly due to grade on side street.) Corner Second and Marion Streets, Seattle.
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% of the value of the building per annum in the case of the highest type of fireproof buildings, 1% for ordinary mercantile buildings, 2% for older property or that of cheaper construction, 3% to 4% for old tenements, and so on up in proportion to the age, character of construction, and lack of care of the buildings.
The cost of rent collecting averages from 21/2% to 3% of the rent receipts in the larger cities, according to the class of property, and about 5% 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% of the income which an expert rental agent could have obtained.
Example of expensive residence wrongly located in suburbs of Indianapolis. Later surrounded by cheap cottages. Land and building appraised at $48,000. Mortgaged for $20,000. Foreclosed and sold ten years later for $1,900.
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: