NOT BUYING IT SOME SOUTHLANDERS FIND THAT IN THE LONG RUN, NOT OWNING HOMES SAVES THEM MONEY.

Byline: Barbara Correa Staff Writer

As a Realtor, Dennis Berry is in the business of turning renters into homeowners. But personally, Berry said he has always been, and always will be, a renter.

``If I did a 30-year loan, I'm looking at being 75 and still working my butt off,'' said Berry, who is 45. ``If I had started younger it would have been a great deal, but now the costs (between renting and buying) aren't that different,'' he said.

Housing affordability is at just 24 percent in Southern California, making buying less attractive for people who don't already own and have already spent much of their adult lives renting.

September's Housing Affordability Index, the most recent available, reports that just 24 percent of Los Angeles County households can afford to buy median-priced houses, down from 31 percent a year ago, according to the California Association of Realtors. For San Bernardino County, 42 percent can afford to buy median-priced homes, down from 50 percent.

The association predicts no end in sight: Its 2004 forecast calls for double-digit home-price increases and expects affordability to drop to just 19 percent statewide.

``If you look at the last two years, until the beginning of this year you looked around for an investment and real estate ... looked like an attractive investment,'' said Mark Obrinsky, chief economist at the National Multi Housing Council. ``But the faster the prices appreciate, the harder it gets to buy, especially if you don't already own.''

As more prospective homeowners settle for lifelong renting, the old rent vs. buy debate comes into more relevant focus.

``We think the financial benefits of homeownership are exaggerated,'' Obrinsky said. He said online buying vs. renting calculators almost always fail to account for a renter's alternative investment with the money they haven't put into a down payment on a house.

He also said the calculators assume a homeowner is itemizing his taxes to write off the mortgage interest and property taxes, when in reality only half of taxpayers actually do itemize.

``From a policy standpoint, we spend too much of our resources pushing people into homeownership instead of having a more balanced housing policy,'' he said.

To be sure, there are strong arguments to be made for the financial advantages of homeownership.

The greatest incentive to buying a home is the investment in an appreciating asset. But a lot of people approach homeownership thinking more about the mortgage interest and property taxes they'll be able to deduct, which are certainly substantial, but are tiny compared to the value of growing equity.

The challenge for the long-term renter is to find other forms of deductions that can lower taxable income.

Clinton Crosby, 54, a lifetime renter and a technical writer for Long Beach County, has nurtured a side business as a consultant for the last 20 years because he couldn't write off mortgage interest on his taxes.

To help compensate, he's been able to write off part of the the home office he uses for the technical documentation and career-management services he provides on the side.

Last summer, he bought a small building in Los Angeles that he is living in until he saves enough for a down payment. He plans to purchase a house or rental property instead sometime next year. As a homeowner, he'll still be able to write off the home office and related expenses.

The home office deduction isn't a solution for every renter.

For instance, Susie Kimball, a human resources worker for a major airline, looked into claiming a home office but found there wasn't any tax benefit for her.

Kimball works for the airline from her apartment. Even though the office isn't used for her own business, she can write it off since it is a requirement of the employer, said Susan Carlisle, a certified public accountant in Woodland Hills. A home office write-off is calculated as a portion of the total rent (or as mortgage/property tax, if you own) of the property.

Typically, a portion of the utilities, phone and Internet expenses, supplies and expenses related to a car are all deductible. But in Susie's case, her employer was paying for all of those, so she couldn't claim them on her taxes. ``I tried to write off my home office, but there was no benefit because my standard deduction was more,'' she said. (The standard deduction is $4,750 for a single filer.) Itemized deductions have to add up to more than the standard deduction.

Kimball is looking at a more dramatic solution: moving to Illinois, where she has family, or to Texas, where home prices are half the price and there's no state income tax.

For renters planning to remain in the state, there are other write-offs worth thinking about. The catch is, most of the good ones apply to the self- employed.

One fact a lot of people aren't aware of is that the home office deduction also makes commuter miles deductible. A worker, whether self-employed or not, can't claim miles driven from home to the office or from home to a client. But the home office transforms that, said Keith Hall, a certified public accountant and consultant to the National Association for the Self-Employed.

``That can be even bigger than the home office deduction,'' he said.

The other big deduction for the self-employed is in retirement accounts. Simplified Employee Pension plans (SEP) allows annual contributions of 25 percent of net earnings (up to $40,000) that's tax-free.

``In effect the IRS is encouraging you to start your own retirement account,'' said Hall. The downside is it does take cash and discipline. And, of course, there's a penalty for early withdrawal. But it's one of the best deductions available.

People with small businesses who have enough work for employees have a few other options. If a business owner hires a child under 17, he doesn't have to pay payroll taxes on the salary.

``The best deductions are money you're already paying that you can convert,'' said Hall. ``You're taking it off the personal side of the ledger and putting it onto the business side.''

Q&A: To rent or not to rent

Apartment advocates offer an alternate view.

Question: As a homeowner, don't I save a lot of money by deducting my mortgage interest and property tax payments on my income tax return?

Answer: Tax savings from homeownership are commonly overstated. Deductibility of mortgage interest and property taxes only matters to homeowners who itemize their deductions. Many homeowners find that the standard deduction - which is available to renters as well - saves more money.

Question: Isn't homeownership a can't-miss investment?

Answer: Many people think houses only go up in value. In fact, changes in house prices vary dramatically from place to place and from year to year. Owning a home should meet the same standards as other investments, including diversification of risk. Don't put all your eggs in one basket.

Question: Why worry about the costs of selling if I plan to live here a long time?

Answer: But will you? More than a quarter of all home buyers move within five years of buying their houses. Sales commissions and other costs of selling a home increase the housing costs of all homeowners, especially short-term owners.

Question: Aren't I just throwing money away on rent, while as a homeowner my monthly payments would build equity?

Answer: In the first five years of ownership, nearly 90 percent of the money spent on monthly mortgage payments goes for interest, rather than payment of principal. Most homeowners also pay mortgage ``points'' at the time of purchase, and these funds - as well as other upfront payments for title insurance, recording fees, inspections and other services - are gone the day the check is written.

Source: National Multi Housing Council

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(color) Real estate agent Dennis Berry, 45, sells homes for a living, but has decided not to buy one for himself since he sees no cost benefit in his financial situation.

Stephen Carr/Staff Photographer

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Q&A: To rent or not to rent (see text)