As interest rates rise, purchasing power declines. The following will provide a financial model for calculating the effects rising interest rates have on purchasing power, along with a working example for a corporate guaranteed single tenant net lease investment property.
As I’m sure you are aware, the Fed has plans to hike interest rates 5 to 7 times this year, which will lead to an increase of 100 – 150 basis points. Please see the attached PDF.
You will see that as interest rates rise, purchasing power decreases. Simply going from 3.75% to 4% interest, reduce $25K of purchasing power for this property based on the current NOI at a 5.5% cap.
Given the current market conditions, we believe we can sell your property between a 5.2% to 5.5% cap should we bring it to market. With that being said, would you be willing to buy your AAP now at a 5.5% cap? Or would you look for alternative NNN investments?
