I read a piece in the Valley News submitted by a professor at Dartmouth's Tuck School of Business a couple of days ago that has been bothering me ever since I saw it. In it, the professor, no doubt a learned and respected member of the faculty ,raised the old question of whether home ownership is a "good" investment. I have seen and heard this argument raised before and can't just let it go by again. The simplified version of his claim is that $15,000 invested in the stock market, even if the market goes completely sour, is less risky that using the same $15,000 as a down payment on a home and borrowing the balance of the purchase price in the form of a mortgage. Of course his answer is perfectly correct as far as it goes. The potential total loss in the stock market is limited to the original $15,000 and the potential total loss in the real estate purchase is the total cost of the property which because a portion of the purchase has been borrowed will be far greater than $15,000.

The problems with the premise are as follows:

1. The potential upside or for this argument, cash on cash return, is not equal. If the stock purchase appreciates 100% in one year, then the cash on cash return is 100% or $15,000. If a home that costs $300,000 appreciates 100%, the cash on cash return is $300,000 or 2000% because the homeowner has used the principal of leverage to increase his return. Of course the likelihood of either investment doubling in one year is slim, but the point is that along with the additional risk, home ownership offers greater potential reward.
2. The home buyer gleans tax benefits that also offset any additional risk that may exist. Even though real estate is not as liquid as securities, you can't live in a security while you are selling it and you can live in your house until it is sold.
3. Probably the most important problem is that the writer ignores the intangibles of home-ownership: the pride, the stability, the freedom to do with your property as you please, the independence that fee simple ownership bestows. As a financial investment, these factors are worthless, but as a human investment, they are priceless.

So, call me touchy-feely, but I sell dreams every day and that's the reason I sell real estate and not insurance, securities, or cattle futures. Give me a little more humanity and a little less cold profit any day.