Don't Mess With Taxes

A while back, I opined that homeownership isn't for everybody.

In that post, I was focusing on folks who over-extended themselves to buy a house. Too many of them didn't have a solid financial foundation and relied on "creative" and/or subprime mortgage loans to buy. We've all seen how that turned out.

But Jack Hough, writing for SmartMoney.com, says Renting Makes More Financial Sense Than Homeownership, regardless of your financial situation.

In the article, Hough says he could easily buy a house, but prefers to rent and put his money into stocks. He contends that businesses are great investments while houses are poor ones, so he'd rather rent the latter and own the former.

He makes some interesting points, some of which are sure to rile homeowners and real estate investors.

For example, Hough says shares of businesses return 7 percent a year over long time periods. Houses, on the other hand, have an average real return over long time periods of zero. Yep. Zilch. Nada. Nothing. Nil.

He explains his math in this collection of reader questions and objections he anticipated.

Homeownership tax benefits: One of the issues Hough touches on is the tax breaks allowed homeowners. He argues that the tax benefits are nominal at best and notes that most taxpayers, including many homeowners, don't even claim them. They take the standard deduction instead of itemizing all their residential and other tax-deducible expenses on Schedule A.

Hough might be correct about the negligible effect of home-related tax benefits in general. For the hubby and me, however, deducting our mortgage interest and property taxes made a big difference on our latest tax bill. Without those expenses, we'd have owed the IRS even more.

But tax savings are not why we bought any of our houses. In fact, the long-term financial implications weren't the driving forces behind our search for the first or subsequent homes we've purchased.

Despite the annoyances of owning a property, and there are many, we just like having our little fiefdom. We are the king and queen of our castle, although we would occasionally like to have a moat. That intangible reward counts for a lot -- the most, actually -- in our eyes.

And we've never looked at any of our homes as an investment. They are places to live. We picked them for that reason only. That they've afforded us a bit of financial reward, despite Hough's analysis, has been a bonus.

Climbing the housing ladder, one rung at a time: We've been lucky in that we made at least a little money on every sale and, thanks to the Florida real estate value run-up and my hurricane-fear induced demand to move in 2005, a lot on the last transaction. That was definitely one of the few times when panic paid off!

The point is, if you want to own a house, do it. But do it wisely. If your credit is questionable, get it in shape first. Then save for a down payment or come up with the money from somewhere else.

We got into our first home, a small suburban Maryland condo, by selling the hubby's car to help make the down payment. When we sold four years later, the profit went toward our first single-family home. And that's what we've done in each subsequent move.

I know it's human nature to want to have the biggest and best immediately. I have personally known some young couples who, as soon as they returned from their honeymoon, started house hunting. Some were prepared for the full costs of homeownership; others, sadly, were not.

For those whose home dreams are much larger than their bank accounts, I highly recommend the real estate route the hubby and I took. We started out our married life with a small residence and moved up the housing ladder.

It's really paid off. We built equity in each residence and preserved our credit and overall financial security in the process, all the while enjoying every one of our homes.