Key ROI Metrics
| Metric |
What It Measures |
Formula |
| Cash Flow |
Monthly profit/loss |
Rent - All Expenses |
| Cap Rate |
Property income yield |
NOI ÷ Property Value × 100 |
| Cash-on-Cash |
Return on invested cash |
Annual Cash Flow ÷ Cash Invested |
| Total Return |
All profit sources |
Cash Flow + Paydown + Appreciation |
Step 1: Calculate Gross Rental Income
Estimating Rent
| Method |
How |
| Comparable rentals |
Check Rentals.ca, Kijiji |
| Property managers |
Ask local experts |
| 1% rule (outdated) |
Rarely achievable in Canada |
Example
| Unit |
Monthly Rent |
| Main unit |
$2,000 |
| Basement suite |
$1,200 |
| Parking |
$100 |
| Gross Monthly |
$3,300 |
| Gross Annual |
$39,600 |
Step 2: Subtract Operating Expenses
Common Operating Expenses
| Expense |
% of Rent |
Monthly (on $3,300) |
| Property tax |
8-15% |
~$350 |
| Insurance |
2-4% |
~$100 |
| Maintenance |
5-10% |
~$200 |
| Vacancy |
3-8% |
~$165 |
| Property management |
0-10% |
~$0-$330 |
| Utilities (if included) |
Variable |
~$0-$300 |
| Condo fees (if condo) |
Variable |
~$0-$500 |
The 50% Rule (Quick Estimate)
| Rule |
Calculation |
| 50% rule |
Operating expenses ≈ 50% of rent |
| Net Operating Income |
Gross Rent × 50% |
| Example |
$39,600 × 50% = $19,800 NOI |
This rule is useful for quick screening but analyze each property.
Detailed Expense Example
| Expense |
Annual |
| Property tax |
$4,200 |
| Insurance |
$1,200 |
| Maintenance |
$2,400 |
| Vacancy (5%) |
$1,980 |
| Utilities |
$1,800 |
| Property management (0%) |
$0 |
| Total Operating Expenses |
$11,580 |
| Net Operating Income (NOI) |
$28,020 |
Step 3: Calculate Cap Rate
Cap Rate = NOI ÷ Property Value × 100
Example
| Factor |
Value |
| NOI |
$28,020 |
| Property price |
$600,000 |
| Cap Rate |
4.67% |
Canadian Cap Rates by Market
| Market |
Typical Cap Rate |
| Toronto |
3-4% |
| Vancouver |
3-4% |
| Calgary |
5-6% |
| Edmonton |
5-7% |
| Ottawa |
4-5% |
| Montreal |
4-5% |
| Halifax |
5-6% |
| Smaller markets |
6-10%+ |
Higher cap rate = higher income relative to price (but often higher risk).
Step 4: Account for Mortgage
Mortgage Example
| Factor |
Value |
| Purchase price |
$600,000 |
| Down payment (20%) |
$120,000 |
| Mortgage amount |
$480,000 |
| Interest rate |
5.5% |
| Amortization |
25 years |
| Monthly payment |
$2,942 |
| Annual payment |
$35,304 |
Principal vs Interest (Year 1)
| Component |
Annual |
| Total payment |
$35,304 |
| Interest |
~$25,500 |
| Principal paydown |
~$9,800 |
Step 5: Calculate Cash Flow
Monthly Cash Flow
| Item |
Monthly |
| Gross rent |
$3,300 |
| - Operating expenses |
-$965 |
| - Mortgage payment |
-$2,942 |
| Cash Flow |
-$607 |
Annual Cash Flow
| Item |
Annual |
| NOI |
$28,020 |
| - Mortgage payment |
-$35,304 |
| Cash Flow |
-$7,284 |
This property is cash-flow negative (common in Canadian markets).
Step 6: Calculate Cash-on-Cash Return
Total Cash Invested
| Investment |
Amount |
| Down payment |
$120,000 |
| Closing costs |
$12,000 |
| Immediate repairs |
$5,000 |
| Total Cash Invested |
$137,000 |
Cash-on-Cash = Annual Cash Flow ÷ Total Cash Invested × 100
| Factor |
Value |
| Annual cash flow |
-$7,284 |
| Cash invested |
$137,000 |
| Cash-on-Cash |
-5.3% |
Negative cash-on-cash means you’re paying to hold the property.
Step 7: Calculate Total Return
Wealth Building Components
| Component |
Annual |
| Cash flow |
-$7,284 |
| Mortgage principal paydown |
+$9,800 |
| Appreciation (3%) |
+$18,000 |
| Total Return |
+$20,516 |
Total Return on Cash
| Factor |
Value |
| Total return |
$20,516 |
| Cash invested |
$137,000 |
| Total ROI |
15.0% |
Despite negative cash flow, total return is positive due to appreciation and mortgage paydown.
ROI Scenarios
Scenario Comparison
| Scenario |
Cash Flow |
Principal |
Appreciation |
Total ROI |
| Strong cash flow market |
+$6,000 |
$8,000 |
$6,000 |
14.6% |
| Toronto/Vancouver |
-$8,000 |
$12,000 |
$25,000 |
21.2% |
| Balanced market |
$0 |
$10,000 |
$12,000 |
16.1% |
Toronto/Vancouver have poor cash flow but higher appreciation potential.
Sensitivity Analysis
What If Rent Changes?
| Rent Change |
Monthly Cash Flow |
| -10% |
-$937 |
| Current |
-$607 |
| +10% |
-$277 |
| +15% |
-$112 |
What If Rates Change?
| Interest Rate |
Monthly Payment |
Cash Flow |
| 4.5% |
$2,661 |
-$326 |
| 5.5% (current) |
$2,942 |
-$607 |
| 6.5% |
$3,234 |
-$899 |
Break-Even Analysis
Break-Even Rent
| Fixed Costs |
Monthly |
| Mortgage |
$2,942 |
| Property tax |
$350 |
| Insurance |
$100 |
| Maintenance (est.) |
$200 |
| Break-even rent |
$3,592 |
You need $3,592/month to break even on cash flow.
Current vs Break-Even
| Factor |
Amount |
| Current rent |
$3,300 |
| Break-even |
$3,592 |
| Gap |
-$292/month |
Red Flags in ROI Analysis
| Red Flag |
Why It Matters |
| Projected rent too high |
Unrealistic cash flow |
| Ignoring vacancy |
Costs 5-10% annually |
| Low maintenance budget |
Repairs are inevitable |
| No reserves |
One repair wipes you out |
| Ignoring cap-ex |
Roof, furnace, etc. |
| Aggressive appreciation |
Can’t rely on it |
ROI Calculation Checklist
| Include |
Don’t Forget |
| ✅ Property tax |
Often underestimated |
| ✅ Insurance |
Landlord policy |
| ✅ Vacancy |
Use 5-8% |
| ✅ Maintenance |
Use 5-10% |
| ✅ Property management |
Even if self-managing |
| ✅ Cap-ex reserves |
Big-ticket items |
| ✅ Utilities |
If included in rent |
| ✅ Condo fees |
If applicable |
| ✅ Closing costs |
In cash invested |
Quick Analysis Template
| Item |
Monthly |
Annual |
| Gross rent |
$ |
$ |
| - Vacancy (5%) |
$ |
$ |
| = Effective gross |
$ |
$ |
| - Property tax |
$ |
$ |
| - Insurance |
$ |
$ |
| - Maintenance |
$ |
$ |
| - Utilities |
$ |
$ |
| - Property mgmt |
$ |
$ |
| = NOI |
$ |
$ |
| - Mortgage |
$ |
$ |
| = Cash flow |
$ |
$ |
| Cash invested |
— |
$ |
| Cash-on-cash |
— |
% |