However the main reason why we chose to purchase real estate as the primary investment tool is that we feel like we can control the outcome better than with stocks or mutual funds. We can raise rents, we can improve the property, etc. When you look at companies like WAMU, World Com, Countrywide, etc. a small-time stockholder can't have an impact over executives' pay packages, accounting blunders, flawed products, lawsuits, etc.

Additionally, if you look at lifetime renters I would be very surprised if you found many of them with large stock portfolios. At least a mortgage is a forced savings plan that most people otherwise wouldn't be able to have the discipline to put into other investments.

Inflation will also raise the value of the house by the same percentage as the rent, which raises the real estate taxes, insurance costs, and maintenance costs by the same percentage.

And inflation will also increase the values of equity investments in the stock market.

So I think that means that overall you can ignore inflation since both sides (renting vs. owning) will be roughly equally affected by it.

The main benefit of renting over buying seems to be that you would normally rent less space than you would buy.

But that reminds me of one of the limitations that owning a home brings with it, that investing in the stock market might allow you to avoid. Your major investment in your house is highly concentrated and not at all diversified. Think of all the things that could devastate the value of the house that are not covered by normal insurance. The house could get mold, or the foundation could crack. The neighborhood could go downhill, or the major employer in the area could go out of business. How sure are you that your area will be the same 30 years from now?

True you might get lucky and buy into the next Beverly Hills, but you might also buy into the next slum and end up selling at a loss. In either case though we are really talking about speculation.

But that brings to mind another pitfall of owning. If the house goes down in value while you still have a loan balance, you could very well end up owing money and be upside down on your mortgage. That’s not possible with renting an apartment and investing the rest in the market. You could definitely lose it all in the market, but you won’t end up owing.

To be honest, I’m surprised this particular topic has garnered so much more interest than the others I’ve written about in the past. It’s similar to when I wrote about new cars versus used cars.

I left tax considerations out because it didn't seem to have much effect on the final total, adds some complexity, and because the taxes factor is highly individual since it depends on all your other financial situations, but I can speak to my own as an example.

The standard deduction for 2007 for married filing jointly is $10,700, so only deductions over that amount matter. My taxes and interest are the only deductions I have that can be itemized.

My interest for the year is (749.42 * 12) $8993.04.

My taxes for the year are (286 * 12) $3432.

That’s a total deduction of $12425.04. The difference from $10,700 then is $1725.04.

My marginal tax bracket is 25%, so a reduction in my taxable income is a savings of $431.26 this year.

As I pay off my mortgage and pay less and less interest and more and more principal, that $431.26 per year will drop to $0. This happens for me over the next 10 years since that’s when my interest and taxes will not be worth more than the standard deduction.

So at the most the tax benefit to me is (10 * $431.26) $4310.26. Compared to the $300k discussed above, or even the annual savings of $8784 above, that's a fairly small amount.