Listen up, kiddies, because we’ve been hearing some muttering out there that all the good deals are gone, and the time to buy an investment property at a sweet price has passed you by. Nothing could be further from the truth. Even paying above market prices today (which many investors are doing in order to snag a property) still leaves you with an asset priced waaay below what it should be going for.

Here’s what we’re talking about. According to Stansberry Research, median home prices retreated from a high of $260,000 somewhere in 2005/2006 all the way down to about $170,000 in 2012. That’s a drop of about 35% in value. Today’s prices have recovered but only slightly, standing at about $180,000, which is still 31% below fair market value. (See graphic)

Seen in these terms, you’d have to pay a price almost a full third above market before you’d be getting anything approaching a “bad” deal. Smart investors realize this. That’s why so many are willing to pay above market to secure a rental property. Our discussion so far has centered around only the actual home price and not taken into account the historically low interest rates being charged now. Let’s take a look at that.

Adjusted for inflation, home prices are roughly equal to what they were back in 1979, when interest rates were a whopping 15%! Over the life of a standard mortgage you’d pay $620,000 in interest. That’s almost enough to stop a person’s heart. At today’s laughably low rates, you’d pay only $106,000 in interest on that same mortgage. That is more than half a million dollars difference! When you put together low home prices and low interest rates, these numbers should make it crystal clear that you haven’t missed the bus when it comes to getting in on great income property deals.

Supply is low compared to demand, that much is true, but you need to adjust your way of thinking. If you have to pay above market price to land a property, then that might be just what you should do. You’re still getting a heck of a deal, and one thing is certain – home prices and interest rates have nowhere to go but up.

Jason Hartman suggest you forget the market price. The housing industry has been knocked out of equilibrium by the price correction and subsequent interest rate tinkering by the Federal Reserve. What you’ve got to ask yourself is, “Where are prices and rates going to go from here?” The answer is easy. Up, my friend, almost definitely up. (Top image: Flickr | the UMF)

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The AIPIS Team