Mortgage Bond Plan for Developing Business Property to Produce Adequate Income

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Mortgage Bond Plan for Developing Business Property to Produce Adequate Income by W. Ross Campbell President of W. Ross Campbell and Co.
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  194Tke Real,tABIueBook olCalilorntu $aanra.- W. RossCaMPBELL PrctirlertW. R6sCorrIJbeUCapuntlt,o8 Anoetes.Mentb.r LdilarkrlConrilte.R.(hjJBhtc BoaL_e|{EI  The MortgaqeBond Plrrn or DevelopinqBusinessrooertv o Produce-Adeouatei r, u- 'Ba W. RossCAMPBTLLTheMortsage Bond.PLan DefuLed--LodnRetired out olIncorne-Finir,ncingB ililingsolLLeased,Grolmd-Costl,aBuild:irrqsak Lou-PricedPropel.ta-CostlaBuikl,ings onEigh-Priced, Properta-BLtild.ingin the Ptlthof Deuetup-ment-HAT is th€ MortgageBoDdPlan?This canbest be answ€red y settingforth an abstract case.Supposeouownapieceofpropertywor{h9100,000.Youdesire o erect hereona building costing$95,000whichyoucan easefor$16,000er yearfor'fiveyealsand918,500er yearfor an addi-tional fiveyeaN.Your lot isclear butyouhave toborow monev oerect he building. You findthatyoucannot obtaiD hisamount ofmoneyon a mo*gageor deed of trust for aper.iodof ionger thsnthre€orpossiblyiveyears.You do not car-eo contracta debt whichyoudo not seeyourwayclear to meet vhen t comesdue;butyoufind that bypayingan amountslightly larger thanthe brokeragecharged or makingthe short loan,youcanobtain a loan on th€ MorjgagF Bond PlitlLOAN RETIREDOUT OF INCOMEYon$eate allortg(LgeDolx{J ss?re onyourpropertyby executing a trust agreement,usuailywith some ar-ge inancialinstitutionastrusteewherebyyoutransferthepropeftyto thetrustees o be heldin trust to securc he noltgage bond holders. Themortgageortr-ustdeed hus createddoesnot comedue in one sum ofS100.000tonedate.It is divided nto a Dumberofpoltionsor bonds,eachof whichisequallysecuredas toprcipaland interest, but ofwhich variousportionsall due oD consecutiv€ates over aperiodofyea$.Forexamtle,yourmortgagebond issueof$100,000ill be due andpay-able$4,000per yearfortwoyear's,$5,000peryearfor threeyears,$8,000er yearfor thleeyears,$9,000he ninthyear;andthe balanceol$44,000omesdue attheend of the tenthyear.Youpay$9,000off at thistime aDd obtain the.rew mortgageof$35,000,whichisaIrlerenominalloan. The difterbnceof$5,000between he$100.000amountof the mortgag€ bond issue, and lhe$95,000neccssan,oerect he buildinggoeso the BondCompanywhich makes he loanandcovers he cost of selling he bondsand theirprofit. T] The ReoltuBlueBookof Colilor)tn195  196TlLeReo,ltlJ lue BooltaJ CalilorniaIn this wayyouareable topayolTheloan or cost ofthe buildingout of the ikcolne ofthepropert!.As eachpalmentmakesyoutinterest chargesessyouareable toDayoff lalgeramounts irsucceed-ingyealswithout difficulty.The balance fallingdue at theend ofthepeliodjsso small thataDyone would begiadto makeyoua loanto take ca]eof it, eYen iltim€s were bad. r.'IJNDSADVANCED!Y BONDINCCOIIPANY 'l'hcmo]tg:rge bondcomDany with \vhichr-ouhavcmadeyouralrangenrerltstakes over the rnoltgagebondjssue{ronllou,supplyi)lgyouwith. the fundsto erectyourbuildirrg, lvhilethe conpany sellsthebonds to its in\'estolclietrts. Inpaying-vournterestxndyour pay-ments of the bonds(paymentsonyourloan)as lhese conedue,youmakeonepaynentlo| each itemto thetr.Ltsteeand thetru;teehandlesthe distributionoftle irrtelest tothe bond hotdenanal theretirementof thcbonds. trVhenhe issue islullypaidoft the trusteeb)'virtue of thc tlustagreernentr.e(on.r'ershepropertt'toyou. Valu. of taldg100,ro0Cost of imDr.v..r€ni11,0rl1rDisconnlto RordCo.5-01,(l ^dounio,rJ.,,ga!.Bords.\ncilill.ili Ch..g€s to Uret.nd CoS1.7F0 Iniriar'r'r!ste.rr,rses11,,,o.unu lnt',r.sr faleonl,.ndsatrir.r..rt.ri!ri.000.osro{ ttritd1lstsr.... 6,0 0 1,0r2nd5,1- 1.000llrd 5,510.1.00.11115,220 10{10Iillr,1.9:01.00!....4,rii10 ,500ith1, .10,1,50.!th3,6d0 5,0001rlr3,185,000I0lh2,li1i,5,0001,550I6,0001,133?,00r,?80rt,0001,0806,000I,i6061,001,51053,001,02,!4t0001,3I0r35,000 :{r| 2i0:100 200200 100200 100200100200100200350 ,1.008,000*1.'isn.inglhalS9,000beDaidofi outofir.omeaDdF35,000th.onsl aFOUR CLASSNSOF DEVELOFITDN1' The ortgagebondplanhasbeeDused forfouf classesof develop,mentof le.llploDertyeach of whichshouldbe discussedseparately.1. Or leasedglound.2. ElectioDo{ cosUybuildings on lo.ii'pricedproperty.3. Electionof costlybuildings on highpricedproperty.4. Electiolof semi-pelnnne)1tbuildingson down-townprop-ertJ in-the patho{ devetopmeDt;but notyetstricdyhighpdcedIand.  The Renltu Blue Bookol Calilorn&L 197FINANCINC UILDINGSNLEASED ROUNDTh€ MortgageBond Plan hasbeenused n the fil1ancinqf build-ingson easedlound,ndwhilehis maybeperfecllJr.opeir shouldbe borne in mindthat such bonds sre ineffect a secondmoltgagesecudty. Thegr-oundentis interest onthegroundvalue.Shouldthebondholdersbeforcedo foreclose ndake over the buildingtheywouldhave opaythisgrouDdent in thesameway and in thesameamountas if therewere a long time firstmortgage on the landandbuildingsn a sumequal to theg?oundvalue.Should thegroundleasecarry an optiontopurchase,he exerciseof this option, fde-sirable,wouldbe the sameaspayingof a filst mortgage.Thepro-moters ofsuchprojectsfr-equentlycapitalizeheirgroundleasentheirprospectus,wher€asrom the standDointf the bondDurchaserlhegroundeaspsaliabilityand a lienpriorto the bondswhicharesecuredby the buildingonly. This issuanceof mortgagebonds onbuildingselectedon leasedgroundis anabuseof the mortgagebondplan,as maDysuchprojectshavedefaultedand thus hur-t hemarket-ing of the legitimateirst mortgagessues.Mortgagebond issueswhichare securedby a ilst mor.tgage llboth land and buildiDgsstandina far betterpositionhan thoseonieasedround.Should he boDdholders ind it necessa(yo foreclosethey have theplivilegeof selling thepropertyoutdghtand thusliquidating heir loan. Ifthey desire ocauy thepropedythey haveonly taxes and ordinarycarryiDg chargeso meet, and theyown theentireDrope*ywithoutludher investment.Provided theamountof loan is not excessive,nd thepropertyis well located,here is nosafer nor soundeTnvestment hanmortgagebondssecur€dby busi-nessroperty.To the average nvestorhey carryone eature ackinginothe.foflnsof secudty, viz.:The investor can actuallysee hesecuritywhich is behindhis ilvestmentin thebonds,and he does othave o studyot.'wolry over complicatedbalancesheetsor dependon others to determine he worthof the securitv.At least he caneasilyhe.kup on the land vslueand.o.iol improvenrentsnd de-termine he soundressf the issue o adegr.eear beyond hat'whichhe can deternine onanv other formofinvestment.As in all issuesof bonds he MortgageBond Plancarries the advantageof obtaininga largesum of moneybygatheringogethersnall amounts. COSTLY BUILDINCSON LOW PRICED PROPENTY The erection of highpr-icedbuildiDgs on lots of low value iscon-fined tofactoryand warehouseprojectswhich are morepropedytobe considered under colporationor industfial bonds,and to hotels andapa*ments which comeproperlyundef our consider-ation,n connec-tion l,!'ith moltgag€bond issues. Unfoftunately the financingof hotelsand apartment houses hasbeen done almost entirely uponan incomebasis. Insteadof s€ttirg forththe fail valuations of l:Lnd improve-ments andissuing bonds for. astatedpercentageof this sum, thepro-moters oftheseplojectsset folth theexpectedgrossand net income,showing howthese figures will amplJrprovidefor the retirement ofthe bonds and sell the bonds or that basis. This is wor'se hana cap-jtalizationof the actual incomeofaproj€ct,because tjsa capitaliza-
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