This is property improved primarily for the net annual income it will produce. It includes detached and double detached dwellings, city-front rows of separate residences of two, three, or four stories, flats, apartment houses, and family hotels. It also in a degree includes the rooms used for families and roomers over the small store-rooms on inferior business streets, which often produce nearly as much revenue from the second and third residence or rooming floors as from the storerooms.
The construction of income residence property demands the highest experience of the architect and the greatest wisdom on the part of the investor. Houses best suited to one climate are not desirable in another. The problems is to produce the greatest floor area, light, ventilation, and comfort at the least expense, by “expense” reference being had both to the original cost and also to the cost of maintenance in both internal and external repairs. Such property must, as a rule, be so constructed as to preclude the idea of selling it for homes, although in eastern cities, where ground is very valuable and city fronts are the rule and built in solid rows, there are many blocks built with the double idea of income and also a fair adaptability for sale for homes in western cities the idea of a home involves the idea of more ground in width than the house covers, so if a city-front row is built, whether divided by fronts into residences or built in flats, it is looked upon as income property pure and simple, with only a remote possibility of the separate fronts being sold as homes. In the latitude of Kansas City and St. Louis, the intense heat of summer demands a freer circulation of air than can be obtained in solid rows. This is one reason that in these cities that double detached residences and double detached flats will finally be generally adopted by wise investors for the better class of income residence property, as they give the greatest light and ventilation at the least cost.
The details of such property respecting the comfort of the occupying family must be studied with the greatest care. It is the successful management of these accessories that often renders one flat or tenement row attractive and profitable while equally imposing structures in the neighborhood are constantly placarded “For Rent” This idea is obvious, and yet it is often overlooked. The provision for drying wash-clothes may seem an unimportant matter to the capitalist who never smelled soap-suds and whose linen is dried and polished at a distant laundry, but to the prudent housewife who does her family work alone or with one servant it is such an important matter that she will often pass over a dozen “for rents” before she is satisfied in this one respect. She thinks of her washing, her ironing, her slops, the front and rear approaches, the window that will do well for flowers, the light, ventilation, economy of heating, furnishing room, kitchen, pantry, closets, and many other matters which the inexperienced capitalist and the blundering architect often overlook. If the projects of most flats and income residence properties had taken on the precaution to have invited the criticism of a few thrifty wives of clerks and merchants, they would never have been built in their present form.
Income residences are like detached homes in this regard, that those are most desirable as investments which are in strongest demand. As homes costing at lower price have many more customers than higher-priced properties, and are therefore to that extent more convertible, so houses of flats renting at a lower price are much stronger demand than those of higher price, because within the means of the average bread-winner. In estimating the net returns of income residence property, the projectors of such improvements generally estimate too large a percentage of the rent-roll as net rent or income. Experience shows, over a long term of years, that it is very superior residence property which shows sixty per cent of the rent-roll to be net income.
There is a class of improvements which must be mentioned which have little or no value considered as permanent improvements, but which often help carry property until a good price can be obtained. For example, the business district has extended itself into a residence neighborhood and the land has advanced in value. The purchaser of the property for speculation has his mind almost entirely on the land, yet for some use he can get a steady rent for the residence as long as he chooses to leave it there. If the land were wholly unimproved, it would be burdensome to pay taxes and get absolutely no investment return; but if the improvements, no matter how poor, produce enough to pay taxes and special assessments and no matter how little margin, the feeling of the owner of the property is comfortable and he is in no uneasy hurry to find a purchaser or to improve. These improvements are said to “help carry” the property. There are hundreds of such nondescript buildings in all cities, and the investor must not allow himself to be deceived into any idea of value attaching to them except the rents which they will temporarily produce. Owners often fail to realize that because they have put $25,000 into a residence in a location which, owing to press of business, has ceased to be a fine residence district, it has no value as a permanent improvement and is only worth a few thousand for the little rent it will produce until it is torn down to make way for business houses. The investor, therefore, must always ask if the improvement is permanent and final and adapted to the best ultimate uses of the property for at least twenty years to come. If so, he can estimate it at what it would cost to reproduce it. If not, it must be estimated at a few years’ rent, the probably time which will elapse before proper improvements are necessary.
