HOME BUYERS FAIR : Benefits of Ownership : Buyers Reap Rewards Renters Only Dream Of : Mortgages: Tax savings, long-term financial gains and roots in the community are among the perks of holding title.

By MARC STEPHEN GARRISON

May 6, 1990 12 AM PT

The American Dream of home ownership is becoming little more than a daydream for many, as fewer and fewer people can afford to buy even a starter home in the Southern California real estate market.

And the same thing is true across much of the nation. For the first time in 50 years, we can no longer afford to be a nation of homeowners. We’re becoming a nation of renters.

If you’re reading this from the comfort of your own home, I don’t have to tell you about the pride of ownership. I don’t have to convince you that the joy of ownership is worth the added responsibility, or that the financial security that owning your own home brings is worth the early years of struggle.

If you’re a member of the renting majority--contributing to some landlord’s bank account, paying off his mortgage--you might need to be persuaded that you can afford a home and that it’s worthwhile to do so. But there are numerous benefits to home ownership versus renting:

--Steady payments. You may be paying much less for rent each month than the family down the street who just bought their first home. But 10 years from now, you may still be renting the same apartment and paying much more in rent than they are for their mortgage payment. If they locked in a fixed interest rate, their payments are going to stay right where they are. Are yours? Have rents ever stayed level for more than a year or two?

Here are some numbers to consider: Say you’re paying rent of $900 a month on your apartment, while the new homeowners are struggling with $1,500 house payments on the $150,000 home they just bought.

Now let’s throw in an average inflation rate of 5% over the next 20 years. At the end of that time, your rent will have at least doubled, to $1,800 a month. The homeowners’ mortgage payment will still be $1,500. Sure, your income may have doubled, but so has theirs.

What’s worse, rents are increasing faster than inflation. In the late 1970s, 40% of all renters were paying out more than one-quarter of their disposable income in rents; today, 53% of all renters are in that same boat. A full one-third of all renters today give 35% of their income to a landlord.

--Retirement. Let’s take the example above and jump ahead another 20 years. Rents have doubled again; you’re now paying $3,600 a month for the same apartment. The Millers made their last mortgage payment 10 years ago on that old house that’s now appraised at $600,000 (inflation is working for the Millers now).

Your working days are over, and the combination of your pension, if you have one, and social security isn’t enough to support you in such high style. Time to move into the one-bedroom hovel at the end of the road.

And by the way, if the numbers in the example above seem unrealistic, take the time to talk to a retiree. Find out from him or her how unrealistic $900 rents and $150,000 houses sounded in the 1940s.

--Tax savings. Ah, Uncle Sam. What a pal--to the homeowner. You see, he allows owners of real estate to deduct mortgage interest payments from their income. In the first years of an amortized loan, most of the payment goes to paying the interest. Greater deductions means less tax paid. It makes dollars and sense to own a home.

As an added bonus, you can either take the money in April--as a refund--or you can take home more every week. For every $1,000 in allowable tax write-offs you have, you can claim one extra exemption on your new W-4 form. More exemptions means a higher take-home pay every week.

There is also a tax-free savings account built into owning your own home. Called the “over 55 rule,” this one-time exemption allows a principal resident seller age 55 or over to claim a once-per-lifetime $125,000 exemption on his home sale profits. What this means is that, as a homeowner, you will be able to sell your home after you turn 55, move into a smaller, less expensive one and legally avoid paying any tax on up to $125,000 of your profit. You then could use that tax-free $125,000 any way you chose.

--Forced savings. We Americans are notorious spenders. We save less than 5% of our disposable income, making us just about the worst savers in the world.

House payments are a lot like a forced savings account. Every month, when the check goes to the lender, another bit of principal is paid off. Only a tiny sliver at first, but toward the end of the loan’s life almost the entire payment is applied to the principal. So every month you’re putting money in the bank.

If you’re renting, you’re helping the landlord meet his or her monthly payments. Keep it up long enough and you’ll end up paying off his entire loan. Who do you want to help more: yourself or your landlord?

--Appreciation. This factor has already been mentioned in passing, but let’s look at its full potential. What will a $90,000 home be worth in 10, 20, 30, 40 or 50 years? It depends on how much appreciation real estate experiences in the meantime.

In the following chart you can choose the appreciation rate you think will be most likely: 3%, 5%, 7%, 9% or 11%. I think anything below 3% is too pessimistic and anything over 11% too optimistic. Go ahead: Take your best guess and see what the home of the future will be worth--but remember, you’re betting your financial future on that guess.

Now do you see the meaning of appreciation? The price of everything may increase at the same time, but without real estate as a hedge, you have nothing to protect you from the ravages of inflation.

--Stability. If you grew up in a house, this may need no explanation. A home is your castle. An apartment--or a rental house--can’t offer the same sense of permanence. We Americans are a mobile people, and yet at the same time we like to sink our roots into whatever soil we inhabit. We love to stake out our own territory and enjoy the feeling of stability that comes only with ownership.

--Freedom. We take our freedoms seriously. Nobody tells us what to do--except the landlord. Ownership allows freedoms that renters barely dream of. You can have your MTV or Lawrence Welk, and you can have it any time, day or night. You don’t have to get written permission to have pets or waterbeds or children. Yes, there are more responsibilities when you own your own home, but ask any owner whether or not those extra chores are worthwhile.

--Pride. Owning your own home does something that renting can never do: It gives you a sense of proud accomplishment. The money that goes out every month doesn’t just line some landlord’s wallet; it’s money you’re paying yourself for having had enough on the ball to buy your own home.

--Community involvement. Buying a home isn’t a prerequisite for community involvement; nor will buying a home obligate you to run for mayor. But buying a home will make you feel more like you’re a part of the neighborhood--and of society at large.

--Responsibility. Every member of your family will learn lessons in responsibility when you own your own home. For adults, there is added responsibility in the form of more yard work and housework. If the faucet leaks or the dishwasher breaks down, there won’t be a landlord to call. Again, the benefits and pride of accomplishment outweigh the sacrifices 10 to 1, and the lessons learned will be passed down from generation to generation.

HOUSING APPRECIATION RATES

Rate Home Price 5 years 10 years 20 years 30 years 5% $150,000 $191,442 $244,334 $397,995 $648,291 7% 150,000 210,383 295,073 580,453 1,141,838 10% 150,000 241,577 389,061 1,009,125 2,617,409