If the property is leasehold the ground rent, length of term, and covenants must be taken into account. If the term is a short one the value will diminish as the date of the expiry approaches.
If the property is copyhold what fines and fees are payable ? .\re fines payable upon the death of the lord or upon the death of the tenant ? or are they payable upon the death both of the lord and tenant ? Is there a heriot (i.e. a tribute of the best beast or other chattel) payable to the lord ? The expression " years' purchase " means the number of wars net income which should be paid in order to produce a certain rate per cent. The number of years is found by dividing 100 by the rate per cent. of interest which is required. For example, if an investment is required to yield 5 per cent., divide 100 by 5, and 20 is found to be the number of years' purchase which should be paid. If the net income from a property is, say, /100, then multiply that by the twenty years— £100 20 £2,000 If the property is purchased for £2,000, it is clear that the purchaser, obtaining from it a net income of 1100, receives 5 per cent. upon his outlay. And so with other rates 4 per cent. = 25 years' purchase 6 per cent. = 163 „ 3 per cent. = 331 „ „ and so on.
Where a property is in the owner's own occupation, the value may be fairly judged by ascertaining from the rate books at the rate collector's or assistant overseer's office (as the case may be) the amount at which the property is assessed for rating purposes. On house property if the assessment for rates is arrived at by deducting 10 per cent. from the gross rent, and in the case of land by a deduction of 5 per cent., when the assessment figures are obtained, one-ninth of the amount must be added to the assess ment, in the case of house property, and one nineteenth added in the case of land in order to obtain the amount which may be considered the gross rental of a place which is in the owner's occupation.
For example, a valuation of an agri cultural freehold estate of, say, 50 acres might be as follows :— In the above example repairs and man agement expenses are put at 10 per cent. of the rent. I f, however, the property con sisted only of buildings the repairs would usually be put at 10 per cent., and manage ment at 5 per cent., but where, as in the case supposed, the estate consists of both land and buildings the deduction is generally 5 per cent. for repairs and 5 per cent. for management. Ten per cent. is considered a fair average deduction. If the buildings, fences, etc., are in a bad state of repair, 15 per cent. might be deducted.
The rates are paid by the tenant.
If the estate is near a town its value is often taken at thirty years' purchase, or more, but if it is in a remote district twenty years' purchase may probably be taken as its value. A valuation for estate duty must in no case exceed twenty-five years' purchase. For safety a banker might reckon a well situated estate at, say, twenty years' pur chase, and one not so well situated at, say, fifteen years. In the above example the
£60 net rental must be multiplied by 20 or 15 as the case may be, in order to arrive at the value. The rent of agricultural land varies considerably, say from 1Ss. to 30s. or 40s. an acre, and in exceptional cases the rent is as high as £3 an acre. A fair average rent of agricultural land may be taken as 20s. an acre.
Under a building lease the lessee or lease holder is under an obligation to build upon the land, and the owner of the freehold reserves to himself a rent, called the ground rent. The value, in the country, of well secured ground rents, as an investment, is, say, from twenty to twenty-five years' purchase. In such cases the lease is for a long period, and the only point to consider is the amount of interest required from the investment as represented by giving twenty years (= 5 per cent.) or twenty-five years (= 4 per cent.) purchase. But if the term to run is short then the reversion must be taken into account ; for example, if the ground rent is £10 and a house worth £1,000 has been built on the land, the land, with the house thereon, reverts to the lessor at the expiration of the lease, and if the lease has only a few years to run it is clear that that fact is a very important one in con sidering the value.
Valuations of coal mines, iron mines, works, factories, etc., require to be made by experts.
It is well to remember that a valuation of works as a going concern is quite a dif ferent matter from the value when the works are closed. In such a case the works may realise at a sale little more than the price of old material.
Further information regarding values is given under FARM STOCK and LICENSED PROPERTY.
The following are a few simple calculations in connection with investments : 1. To find the price at which /100 stock bearing 5 per cent, interest must be bought to yield, say, 4 per cent. :— ,1:100 5 4)500 That is, multiply the amount by the rate of interest it bears, and divide by the rate of interest required.
2. To find what interest ,S100 stock, bearing interest at 5 per cent., will yield when bought at a certain price, say, I150 : 1100 5 1,3 6s. Sd.
That is, multiply the nominal amount of stock by the interest it bears and divide by the price to be paid for it.
3. In the purchase of property, divide L'100 by the number of years' purchase to be paid, to find the rate per cent. which the investment will yield. The " years' pur chase " equals the rent multiplied by the number of years required to make the purchase price.
4. To find the number of years' purchase to give in order to obtain a certain rate per cent., divide 100 by the rate per cent. To pay 5 per cent. the number of years would be twenty—thus : Rent „CIO Price po0 5. Where a property has been purchased for, say, 1,1,000, and the rent is 150 per annum, divide the rent into the price _ 1,000 a0) and the quotient is the number of years' purchase which has been paid. Twenty years' purchase equals 5 per cent. (see No. 3, above). (See ADVANCES, TITLE DEEDS.)