updated 7/27/2004 8:47:27 PM ET 2004-07-28T00:47:27

There's nothing dreamy about the advantages of owning a house. In general, a house in the U.S. appreciates 4 percent to 5 percent per year. Clearly, the figure varies from neighborhood to neighborhood and region to region, but it's a good rule-of-thumb.

Do the math: If you bought a $200,000 house with 20 percent down — $40,000 — and if it appreciates at 5 percent per year, the value increases $10,000 in the first year. That's $10,000 on a $40,000 down payment, a return of 25 percent. Try getting that in a choppy stock market.

Home ownership brings monthly mortgage payments and the joy of property taxes plus the cost of upkeep — banes no renter frets about, at least directly. But remember that interest on the mortgage and the property taxes are tax deductible. This means that for once, the government is putting money in your pocket by subsidizing the purchase of the house. Current mortgage rates are still low by historical standards and buying a house at a fixed rate means you know what housing costs will be in the future.

Some view buying a house as a forced savings plan for those who can't otherwise save. Each month, a percentage of the mortgage payment goes to principle. It's a trivial amount early in the first years, but increases throughout the term of the mortgage. This is money in your pocket and it's on top of the increased value of the house each year.

For most, this winning combination is the best investment around.

Unless you live in a condo, co-op or planned-unit development, you're free to improve the house as you see fit. Good taste and handyman skills increase the resale value of your house — fancy moldings, wood floors, window decorations and carpet can be winning additions.

Keep in mind that a real estate agent's commission of about 6 percent and closing costs will take a bite out of your nest egg so don't sell too soon. If you sell before the value of the house has increased to at least cover the basic costs of the sale, you'll lose money.

Of course, there are unknowns such as loss of a job or transfer to another city. Divorce is always a stinker and it's unwise to buy on the theory that three bedrooms and two baths will patch a busted marriage.

You won't be in the house forever so look for a house with resale value when you buy. That includes quality of construction, amenities and location — schools, parks, shopping and recreation. Always check out the property taxes and make sure that the municipal services are up to snuff.

If you're an urban pioneer, buying an older house in the central city might make sense. This requires guts, smarts and luck. There's no guarantee that the neighborhood will rebound as hoped. Old houses require lots of work and seem to do best on a steady diet of money. A change in tax laws or a clunk-headed city government can erode or destroy your investment. But a walk through a neighborhood of revitalized Victorian houses underscores the rewards of buying in an old area.

Home ownership rewards most buyers and, barring a severe economic downturn, it's as close as it gets to a "can't miss" investment. But if you like to move around a lot, hate working with your hands and don't want to be pinned down by property, chucking rent money down the rabbit hole is just the price of freedom.

© 2012


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