Home sweet rental

Home ownership has often been considered a critical part of the American Dream — an unwritten privilege of living in America bestowed on its financially secure citizens.

Owning a home was the ticket to financial security and, for several years earlier this decade with home values soaring, seemingly the best investment Americans would ever lay their hands on.

But in the wake of the housing crisis — with home values down 35 percent or more and with little robust growth seen on the horizon — it may be time to ask whether buying a home is still so vital to financial happiness.

The current economic environment is making a strong case that renting a home and smartly investing your savings can be just as rewarding.

When making the decision to buy vs. rent, people usually consider several factors — the rent vs. mortgage payment being the primary question. But there are other financial factors to consider, including:

* Your insurance premium.

* Property taxes (which are usually higher than any tax deduction you get from your mortgage interest).

* Maintenance (pipes break, electricity problems, etc.).

* Utilities (utilities and maintenance for renters is often reflected in the rental price, but it’s not reflected in a mortgage when you own).

* Yard work, pest control, remodeling, etc. (again, rents usually have this built into the price, but mortgages don’t).

And let’s not forget those initial costs that always seem to add up to more than you expect:

* A down payment of at least 15 percent, which is $90,000 on a $600,000 home.

* Closing costs, usually 5 percent of loan amount, or another $25,000.

* Initial remodeling costs.

Remember that you are completely out of that cash down payment you made because even if you sell, homeowners usually roll over that initial down payment into a new house for tax purposes. Cash is king and many prefer having cash in the bank.

Okay, so when you buy you definitely spend more per month and your initial costs mean that the house has to appreciate 10 percent-to-20 percent on Day 1 in order for you to break even. But that’s supposed to be okay because you have the house as an investment, right?

Well, except for earlier this decade, it’s been a so-so investment.

Between 1890 and 2004 (when housing prices began being tracked up until the peak of the housing boom, so I am giving zero credit to the decline in housing prices that have made these numbers a lot worse), housing went up a dismal 0.4 percent annually vs. 8 percent for the stock market, according to the Social Security Advisory Board.

Critics of renting point to real estate being an asset as opposed to throwing money away renting. But they forget about the massive amounts of money that it takes to get into the home ownership game.

Rather than spend $100,000-to-$200,000 on a home’s initial cost — and that has become completely illiquid as long as you own the house — you can put that money in a portfolio of diversified real estate investment trusts, including residential investment trusts, if you truly believe in the housing market.

Renting in today’s market and investing your savings will allow you:

* To diversify your savings, something buying a home prevents you from doing.

* To keep your assets liquid, a real security blanket, particularly in times of stress.

* To keep from becoming way too leveraged in housing for a significant chunk of your portfolio.

So while the banking industry, the White House and your Uncle Bob are all telling you to buy a house already, your portfolio may be better set if you rent a place to live.

And maybe you can get your landlord to shovel the snow.

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