Land Ownership vs. Renting In 2024

Owning land is about as American as the flag and hot dogs.  Many Europeans emigrated across the Atlantic, not because of religious freedom, but because land ownership was rarely available to them at home.

To make one more aside before getting to my point, I am a history lover and I have a copy of the US Constitution on the wall of my MD office.  The Constitution took effect in early 1789 and you may note that this founding document did not include an express protection of the right to vote.  Rather, state legislatures dictated voting rights and generally limited voting to those who owned land!

Getting more to my point,  I wanted an opening to discuss the topic of how important land is to segue into how expensive land is to own today…

The chart below is fascinating. It illustrates the premium on mortgage payments relative to rents with today’s high property costs and higher interest rates over the last few decades.

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Today, if you were to take out a 30-year mortgage for $500,000 at a 7% interest rate, you would have approximately $200,000 of payments over the next five years.  At that time, you would have only paid down principal on the mortgage of approximately $30,000. The calculus for taking on a mortgage at today’s rates and prices are more difficult than ever, especially if you are not looking at your “forever home.”

There’s a common saying along the lines of “if you rent, you are just throwing away money never building equity.”  It’s a half right statement, but not always correct.  Renting could be the right option until rates come down, prices adjust, or new housing becomes available that is more conservatively valued.

As with all significant investments, it's crucial to weigh the pros and cons. Before taking on such a financial commitment, it's advisable to explore options and that is where Foundation Wealth can always help. Ultimately, making informed decisions about homeownership can lead to greater financial stability and long-term wealth accumulation… even if it means renting.