Cap Rate Calculator: Rental Property Cash Flow, Cap Rate and ROI

Work out a rental's cap rate and cash flow

Pick Ontario or the City of Toronto, then enter the purchase price, your down payment, the rent and the main costs. The calculator works out net operating income (rent less running costs, before the mortgage), the cap rate, the cash flow after mortgage payments, and the return on the cash you put in, counting land transfer tax and closing costs. Open "More assumptions" to change insurance, utilities, upkeep, empty months, how often tenants change and how you'd find them.

What is a cap rate?

The cap rate (capitalization rate) is a rental's yearly net operating income divided by its price. Net operating income (NOI) is the rent you actually collect, less property tax, insurance, condo fees, utilities you pay, repairs and the cost of finding tenants. It leaves the mortgage out on purpose, so any two buyers can compare the same property, however they finance it.

Cap rate formula: NOI ÷ purchase price × 100. A $600,000 house with $20,494 of NOI has a cap rate of 20,494 ÷ 600,000 = 3.42%.

The cap rate tells you what the property earns. Cash-on-cash return tells you what your money earns: the cash flow after mortgage payments, divided by the cash you put in (down payment, land transfer tax, closing costs and upfront repairs).

What's a good cap rate?

Compare the cap rate with your mortgage rate. When the cap rate is above the mortgage rate, every dollar you borrow earns more than it costs, so the mortgage lifts your return. When it's below, borrowing drags it down and the rental needs a monthly top-up; the return then depends on the mortgage being paid down and the price going up.

In the calculator's Ontario example (a $600,000 house rented for $2,900 a month, a 3.42% cap rate, a 4.5% mortgage over 25 years), the down payment decides the monthly cash flow:

What the calculator counts

• Buying costs: Ontario land transfer tax on the price, plus Toronto's municipal land transfer tax inside the City of Toronto, your lawyer and other closing costs, and any repairs before the first tenant.
• The mortgage: a Canadian fixed-rate payment, with interest compounded twice a year (not monthly, as US calculators assume).
• Rent you actually collect: the monthly rent and any other income (parking, storage), less the empty months between tenants.
• Running costs: property tax, landlord insurance, condo fees, utilities you pay, and repairs and upkeep as a share of the price.
• Finding tenants: a flat fee MLS® lease listing, or a leasing agent's usual fee of one month's rent, plus HST, spread over the years between tenants.
• Total year-1 return: the cash flow, plus the part of your mortgage payments that paid down the balance, plus price growth, divided by the cash you put in.

Down payment on a rental property in Canada

A rental you won't live in needs at least 20% down. Mortgage insurance, which lets buyers put down as little as 5%, covers homes the buyer lives in; CMHC's insurance for rentals the owner doesn't live in stops at 80% of the value (CMHC quick reference). If you'll live in one unit of a 2 to 4 unit property, the owner-occupied rules apply instead.

Three ways to improve a rental's numbers

• Cut the cost of finding tenants. A leasing agent's one month's rent plus HST on a $2,900 rental is $3,277 every time a tenant changes. A flat fee MLS® lease listing costs a fraction of that; in the calculator's example the difference is about $1,580 a year with a new tenant every 2 years.
• Keep it rented. Each empty month costs a full month's rent. List before the current tenant moves out, with good photos and the rent set to the market.
• Count every cost before you buy. Property tax, insurance, condo fees and repairs are what turn a good-looking rent into a negative cash flow. Use the seller's real numbers, not estimates.

List your rental on MLS® for a flat fee

When the unit is ready, list it for lease on the MLS® System and realtor.ca yourself: inquiries come straight to you, you show it and pick the tenant. A lease listing costs $99.99 for 2 months instead of a leasing agent's one month's rent, every time a tenant changes. Listings are with Robin Hood Realty Limited, Brokerage.

See the difference for your rent with our leasing agent fee calculator.

Questions

Flat fee MLS® prices

Plus 13% HST on Ontario listings; no tax on Alberta listings. The monthly plan can be cancelled any time.

Own rentals? Lock in today's price for every new tenant

Every rental comes back to the market when a tenant moves out. Buy listing credits in My Account after your first listing: 2 credits save 10%, 3 save 25%. Credits never expire, keep today's price and work on any property, for rent or for sale.

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