Key Metrics Summary
| Metric | Formula | Good Target |
|---|
| Cap Rate | NOI ÷ Property Value | 4-8% |
| Cash-on-Cash | Annual Cash Flow ÷ Cash Invested | 5-10% |
| Cash Flow | Rent - All Expenses | Positive |
| Total ROI | All Returns ÷ Cash Invested | 10-15%+ |
| GRM | Property Price ÷ Annual Rent | 8-15 |
Calculating Cash Flow
Monthly Income
| Income Type | Description |
|---|
| Rent | Monthly rent collected |
| Parking | If separate |
| Laundry | Coin laundry revenue |
| Storage | Additional fees |
| Total Income | Sum of all |
Monthly Expenses
| Expense | Typical % of Rent |
|---|
| Mortgage (P+I) | 50-65% |
| Property taxes | 8-15% |
| Insurance | 2-4% |
| Maintenance | 5-10% |
| Property management | 8-10% |
| Vacancy allowance | 5-8% |
| Utilities (if included) | 0-15% |
| Condo fees | 0-30% |
Example Cash Flow
| Item | Monthly |
|---|
| Income | |
| Rent | $2,500 |
| Expenses | |
| Mortgage | $1,400 |
| Property tax | $350 |
| Insurance | $80 |
| Maintenance reserve | $150 |
| Management (8%) | $200 |
| Vacancy (5%) | $125 |
| Total Expenses | $2,305 |
| Cash Flow | $195 |
Cap Rate Calculator
Cap Rate = Net Operating Income ÷ Property Value × 100
Example
| Item | Amount |
|---|
| Annual Rent | $30,000 |
| Vacancy (5%) | -$1,500 |
| Effective Income | $28,500 |
| Property Tax | -$4,200 |
| Insurance | -$960 |
| Maintenance | -$1,800 |
| Management | -$2,400 |
| NOI | $19,140 |
| Property Value | $500,000 |
| Cap Rate | 3.8% |
Cap Rate by City (Approximate)
| City | Typical Cap Rate |
|---|
| Toronto | 3-4% |
| Vancouver | 2.5-3.5% |
| Calgary | 4.5-6% |
| Edmonton | 5-6.5% |
| Ottawa | 4-5% |
| Montreal | 4-5% |
| Halifax | 5-6% |
| Winnipeg | 5-7% |
Lower cap rates in expensive cities reflect appreciation potential.
Cash-on-Cash Return
Cash-on-Cash = Annual Cash Flow ÷ Total Cash Invested × 100
Cash Invested Includes
| Item | Typical Amount |
|---|
| Down payment | 20%+ of price |
| Closing costs | 1.5-4% |
| Immediate repairs | Varies |
| Furnishing (if applicable) | Varies |
Example
| Item | Amount |
|---|
| Property Price | $500,000 |
| Down Payment (20%) | $100,000 |
| Closing Costs | $10,000 |
| Repairs | $5,000 |
| Total Cash Invested | $115,000 |
| Annual Cash Flow | $2,340 |
| Cash-on-Cash | 2.0% |
Total ROI Calculation
All Return Components
| Component | Description |
|---|
| Cash flow | Net income after expenses |
| Principal paydown | Mortgage pays down equity |
| Appreciation | Property value increase |
| Tax benefits | Deductions, deferrals |
Example Total ROI
| Return Source | Annual Value |
|---|
| Property Value | $500,000 |
| Cash Invested | $115,000 |
| Cash Flow | $2,340 |
| Principal Paydown | $7,200 |
| Appreciation (4%) | $20,000 |
| Total Return | $29,540 |
| Total ROI | 25.7% |
This shows why investors accept low cash flow in appreciating markets.
The 1% Rule
Quick Assessment
| Rule | Target |
|---|
| 1% Rule | Monthly rent ≥ 1% of purchase price |
| 2% Rule | Excellent cash flow (rare in Canada) |
Examples
| Property Price | 1% Target Rent | Achievable? |
|---|
| $300,000 | $3,000/month | Possible (smaller cities) |
| $500,000 | $5,000/month | Difficult |
| $800,000 | $8,000/month | Very rare |
| $1,000,000 | $10,000/month | Almost never |
Most Canadian properties don’t meet 1% rule. Focus on total ROI.
Expense Breakdown Guide
Property Taxes
| City | Approx. Rate (Residential) |
|---|
| Toronto | 0.6% |
| Vancouver | 0.25% |
| Calgary | 0.75% |
| Edmonton | 0.85% |
| Montreal | 0.9% |
| Halifax | 1.2% |
Insurance Costs
| Property Type | Annual Cost |
|---|
| Single family | $1,000-$2,000 |
| Condo | $500-$1,000 |
| Multi-unit | $2,000-$5,000+ |
Maintenance Reserve
| Property Age | Reserve % |
|---|
| New (0-10 years) | 5% |
| Middle (10-25 years) | 7.5% |
| Older (25+ years) | 10-15% |
Common Major Repairs
| Item | Cost | Lifespan |
|---|
| Roof | $8,000-$15,000 | 20-30 years |
| Furnace | $4,000-$7,000 | 15-20 years |
| A/C | $4,000-$6,000 | 15 years |
| Water heater | $1,500-$2,500 | 10-15 years |
| Appliances | $500-$2,000 each | 10-15 years |
Financing Impact on ROI
Down Payment Scenarios
| Down Payment | Mortgage | Monthly P&I* | Cash Flow |
|---|
| 20% | $400,000 | $2,100 | -$300 |
| 25% | $375,000 | $1,970 | -$170 |
| 35% | $325,000 | $1,705 | $95 |
| 50% | $250,000 | $1,315 | $485 |
*At 5% interest rate, 25-year amortization, $500K property, $2,500 rent.
Cash-on-Cash vs Down Payment
| Down Payment | Cash Invested | Cash Flow | Cash-on-Cash |
|---|
| 20% | $115,000 | -$3,600 | -3.1% |
| 35% | $190,000 | $1,140 | 0.6% |
| 50% | $265,000 | $5,820 | 2.2% |
Lower down payment = worse cash flow but better use of capital (if appreciation occurs).
Multi-Unit Analysis
Per-Unit Economics
| Units | Total Rent | Expenses | Cash Flow | Per Unit |
|---|
| Duplex | $4,500 | $3,800 | $700 | $350 |
| Triplex | $6,300 | $4,900 | $1,400 | $467 |
| Fourplex | $8,000 | $6,000 | $2,000 | $500 |
Multi-unit often has better cash flow per dollar invested.
Tax Considerations
Deductible Expenses
| Expense | Deductible? |
|---|
| Mortgage interest | ✅ Yes |
| Property taxes | ✅ Yes |
| Insurance | ✅ Yes |
| Repairs | ✅ Yes |
| Property management | ✅ Yes |
| Advertising | ✅ Yes |
| Travel to property | ✅ Reasonable |
| Utilities (if paid) | ✅ Yes |
| CCA depreciation | ✅ Optional |
| Mortgage principal | ❌ No |
CCA Depreciation
| Building Class | Rate |
|---|
| Class 1 (most buildings) | 4% |
Using CCA reduces current taxes but increases tax on sale.
Decision Framework
Good Investment Signs
| Indicator | Target |
|---|
| Positive cash flow | After all expenses |
| Cap rate | Above local average |
| Growing area | Population, jobs |
| Below market rent | Value-add opportunity |
| Deferred maintenance | Low |
Warning Signs
| Red Flag | Risk |
|---|
| Negative cash flow | Depends on appreciation |
| Very low cap rate | Overpriced |
| Declining area | Value loss |
| Major repairs needed | Hidden costs |
| High vacancy area | Income risk |