Few loans are made by reputable firms except on new buildings; and, as the loans always run for short periods, the investor is asked to buy only into mortgages on new buildings. New buildings, or at least new apartment houses, are usually the easiest to rent because they are the most attractive.

In the class of city mortgages there is special division of guaranteed securities, which make a fine form of investment for income, provided the guaranteeing institutions are of known financial strength. Mortgages which have such guarantees endorsed upon them are certain to have passed a rigid examination and to be characterized by a small element of risk. But they usually command a high price and do not, therefore, yield so much income as similar mortgages that are not guaranteed.

Mortgages and bonds have many points in common. Bitter controversy ever rages as to which are the better investments. The distinguishing advantages of the mortgage over the bond seems to be the higher rate of interest that it pays. In cities such as Chicago, Cleveland and Pittsburgh, bonds secured by first mortgages on apartment houses and stores may be purchased from strong reliable firms to return from five and a half to six per cent. From successful dealers in Chicago, Minneapolis and many other places in the West and South, direct first mortgages on farms may be purchased in amounts of from two hundred and fifty dollars up to five thousand dollars and more, to yield five and a half to six per cent. Even higher rates may be had, but in the best selected sections a six per cent. net return to the owner of the mortgage is considered conservative and reasonable.

The higher average rate of interest on mortgages may sometimes be due to inferior investment quality, or it may more probably be accounted for by the greater difficulty of disposing of a mortgage once it has been bought. Having no public market in which mortgages are sold, the investor must fall back on the firm from which he made the purchase. Many firms dealing in both city and farm mortgages boast a record almost unfailing of having bought back their mortgages at par with a nominal handling charge of one per cent.

Mortgages are but little if any affected by such things as politics, trust legislation, tariff reductions, government control, regulation and ownership and other similar influences. They are preeminently a short-term investment. Of course, there is never any increase in the market value of the principal sum of a mortgage, as there often is in the case of bonds, but on the other hand, as with all short-term investments, there is no decrease in price unless the value of the property itself becomes seriously impaired.

It is true that at times of depression especially in city real estate, the selling price of numerous pieces of property falls to the mortgage loan figures, but the investment record of mortgages has not suffered noticeably at such times. This is due to the elementary fact that it is comparatively easy to estimate roughly what half the value of the underlying security is. Even a slight error in appraisal makes but little difference because the margin is so large. Even an unsuccessful management does not destroy the investment, because while poor management does destroy value in the case of either city or farm property, it can hardly destroy half the value in a short space of time, especially if the property is well located and has all the other essential characteristics of the basis of a good loan.

A great many substitutes have been made and offered to the public to take the place of the kind of mortgages so widely used by conservative investors as safe and profitable means of employing surplus funds for income. These substitutes range all the way from second or third mortgages, or bonds secured by such mortgages, to construction bonds and debentures that are not secured by any mortgage at all. The latter are an extremely common type. They are sometimes referred to as "equity bonds." They are mere promises to pay, and are seldom if ever any better than the credit of the company which signs them. Depending upon the ability of the issuing companies to make big profits, such debentures as a rule offer nothing more than participation in the real-estate business and are, therefore, rarely of genuine investment merit.