Q. I am 42, single, and have never bought a house. My friends keep asking me why I keep "throwing my money away" on rented apartments. They say I should buy a house to get the tax break. Yet these same people complain about not having any money left over after paying for mortgages, property taxes, home repairs, maintenance, and landscaping, etc.

I started investing money in mutual funds and retirement accounts right after college. Currently, my portfolio includes $61,000 in vehicles ( IRA, tax sheltered annuity, and tax deferred annuity). I invest $300 each month in mutual funds, $150 each month in a TDA, $2,000 per year in an IRA, and put $400 each month in a money market savings account ( current balance $4,000).

In 1995, 29 percent of my gross income was withheld for federal, state, and Social Security taxes. I currently spend 20 percent of my gross income on rent. I have no outstanding debts. Would owning my own home be as advantageous financially as people say? I usually receive about a $300 tax refund each year.

---J.U., Minneapolis, MN

A. No. Your friends need to wake up and smell the coffee. This is 1996, not 1976 or 1966. With the exception of relatively expensive houses, most people get minimal tax benefits from home ownership. The table below, taken from a column written in March, shows the estimated tax benefits in the first year for people who buy at the median home price with a 20 percent down payment.

There is a reason the tax benefit is lower than expected: the standard deduction. This year a couple filing a joint return will have a standard deduction of $6,700. ONLY itemized deductions that exceed this amount produce tax savings. Since a typical worker has very, very little in deductions beyond real estate taxes and home mortgage interest, the real tax benefits from ownership are small. In the example below, for instance, the tax savings are about $110 a month for the median priced existing home in the most expensive area of the country. They are smaller elsewhere. And smaller for people who have reduced their mortgage debt significantly.

How Different Regions Benefit from Home Ownership Deductions

Region Median Home Price Tax Benefit @28%
West $148,400 $1,324
Northeast $134,100 $1,020
South $ 99,100 $ 275
Midwest $ 95,200 $ 192

Sources: National Association of Realtors; Scott Burns calculations, 3/3/96

While most people own houses or condos that have significantly more space than a typical rental unit, both their gross and net after-tax savings monthly expenses are significantly greater than what you would pay for a rental unit in most markets. ( In Dallas, Houston, and some other areas of the Southwest it is still possible to buy a condo and have monthly ownership expenses that are lower than rent on the same unit)

What your friends are telling you about is what happened in another era. If you bought a house in the sixties or seventies, you had great tax benefits and wonderful annual appreciation because of inflation. It was a good investment decision to buy as much house as you could and borrow as much as you could. Someone who invested in stocks and bonds during the same period, however, was severely punished by rising interest rates and the stock market crash of 73-74'.

But that was then.

Now the situation has reversed. Homeowners have suffered from limited price appreciation and relatively high interest rates while stock investors have enjoyed one of the best markets in history.

I know this response will bring hate mail from real estate agents and sentimentalists. But this is the way it is. In the sixties and seventies owning a large house was a great substitute for saving and investing. That isn't the way it is today.

Anyone who wants to own a house should. I personally love owning a house. But no one should let owning a house get in the way of active, regular saving and investing.

Q. You have mentioned two or three companies that sell their shares directly to the public. Do you have a complete list or a source I can refer to for similar companies?

---S.M., aol.com

A. There are several sources for this information. In print form look for "Buying Stocks Without a Broker" by Charles B. Carlson, published by McGraw Hill in 1992. The same author also published a Directory of Dividend Reinvestment Plans through Dow Theory Forecasts, Inc. And since you're online, you might first check the DRIP web site.