Canadian cap rate calculator
Cap rate is net operating income divided by price. It ignores the mortgage, so it compares two properties fairly. Enter your rent and costs to see the cap rate.
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How cap rate works in Canada
Cap rate is one of the cleanest numbers in real estate. Take the net operating income for the year, the rent after vacancy and every operating cost but before the mortgage, and divide it by the purchase price. The result is a percentage. A $32,500 NOI on a $650,000 property is a 5% cap rate.
Because cap rate ignores the mortgage, it lets you compare two properties without financing getting in the way. One might be bought with 20% down and another with 35%, but their cap rates are still comparable. That is why it is the first number many investors check when they line up a shortlist.
The Canadian inputs that move it
Property tax is the swing factor. It runs off the municipal mill rate, and rates vary a lot across Canada. Hamilton's rate is higher than Toronto's, so the same rent produces a lower NOI and a lower cap rate there. Insurance, maintenance, management, and a vacancy reserve all belong in the NOI too. Leave one out and the cap rate looks better than it is.
Use cap rate the right way
- Compare cap rates within one market, not across very different ones.
- Pair cap rate with cash-on-cash, which adds the mortgage back in.
- Build the NOI on real costs, with property tax from the city's actual mill rate.
Cap rate questions
What is cap rate?
Cap rate is the net operating income divided by the purchase price, shown as a percentage. It measures the return as if you paid all cash, so it ignores the mortgage. That makes it the right tool for comparing two properties on equal footing.
What is a good cap rate in Canada?
It varies by market. Many investor-grade Canadian properties land in a 4.5 to 6% band, with older multi-unit houses at the higher end. Toronto and Vancouver often sit lower because buyers pay for appreciation. Compare cap rates within a market, not across very different ones.
Does cap rate include the mortgage?
No. Cap rate stops before financing, on purpose. That is the difference from cash-on-cash, which includes the mortgage. A property can show a fine cap rate and still hand you weak cash flow once a Canadian mortgage is on it.
How do I raise a property's cap rate?
Raise the NOI or lower the price. More rent, lower operating costs, or a better property tax position all lift the NOI. The price you pay is the other lever. A lower purchase price on the same NOI is a higher cap rate.