68 BULLKT1X \2BA, U. S. DEPARTMENT OF AGRICULTURE. 
cent money to buy 5 per cent land and thus drive up the price of land 
until it was on a 4.5 per cent basis. For example, one such rule might 
be that a buyer who borrows must operate the farm he purchases 
with such a loan for a period of from 5 to 10 years. 
If land incomes rise as rapidly during the next decade or two as 
they have risen in a large part of this country since 1900, such a 
policy as outlined would not prove to be so effective unless accom- 
panied by other measures. Lowering the rate of interest by 0.5 per 
cent would still leave the interest payments high in the early years 
after the purchase relative to the percentage of return on the land 
investment. If, however, the rate of interest on borrowed money 
could be adjusted to the rate of return on land investments so that 
the interest payments would be relatively low in the early years 
after purchase and gradually increased as the percentage of return 
on land investment increased, then competent tenants would be en- 
abled to become owners, even when land incomes are rising rapidly. 
A policy of adjusting the rate of interest on borrowed capital to 
the rate of return on land investments would involve a number of 
difficulties both economic and administrative. Such a policy is sug- 
gested here mainly to point out the importance of keeping in mind 
the relation which land income bears to land value in determining 
the effectiveness of any credit policy designed to decrease the per- 
centage of tenancy and the importance of framing such a credit 
policy in accordance with this relationship. 
LAND VALUATION FOR PURPOSES OF MORTGAGE CREDIT. 
The relations between income, expected income, rate of capitali- 
zation, and land value also need to be considered in appraising land 
for mortgage loans. Since in this country a large percentage of the 
farms are operated either by their owners or by tenants on a share 
basis it is easier to determine the most probable sale price of a farm 
than to determine its annual rental. In England, where practically 
all farms are operated by tenants under cash-rent contracts, lands 
are appraised for credit, taxation, etc., by capitalizing these annual 
cash rents. In this country, however, the number of cash-rented 
farms is small, so that the determination of the most probable sale 
price of a farm has constituted the best method of appraising it for 
purposes of mortgage loans or taxation. 
According to this method, the most probable sale price of a par- 
ticular farm is determined by comparing it with other farms in the 
community which have been recently sold. Thus, the general level 
of land values in a conmiunit}^ is taken as a basis and starting point 
for determining the value of a particular farm. Therefore, in order 
to determine the amount that can be safely lent it becomes im- 
portant to know what the component parts of this value level are. 
What part of the value is based upon anticipated increases in in- 
come and what part on present income. In general, a larger loan 
can be made with safety in areas having a smaller percentage of the 
value based upon anticipated increases in income than in areas hav- 
ing a larger percentage of the value thus accounted for. 
In making loans on farm real estate, bankers, insurance companies, 
and other lenders want to know two things: (1) How large a loan 
can be made with safety on a given farm; and (2) will the interest 
payments be regularly and promptly met ? 
