Rental Property ROI

Take the rent you actually collect after vacancy, then subtract every monthly cost: the mortgage payment, strata fees, property tax, insurance, maintenance and property management. What is left is your monthly pre-tax cash flow. If the number is negative, you top up the difference out of pocket every month.

There is no single good number. Work it out as net operating income divided by the purchase price, then compare it against similar properties in the same neighbourhood and building type, and against what your money would earn elsewhere. Cap rate ignores financing, so it lets you compare a condo, a townhouse and a house with a suite on equal terms before the mortgage enters the picture.

Cash-on-cash return is your annual pre-tax cash flow divided by the cash you put in: the down payment plus closing costs and any upfront repairs. It answers one question: what is the cash I invested earning each year in cash? It leaves out principal paydown and any change in the value of the property.

Cap rate measures the property: net operating income divided by the price, with no mortgage involved. ROI measures your money, and changes with how you finance the purchase. Cash-on-cash return is the most common ROI figure for a rental, and it counts the mortgage payment. Two buyers can see the same cap rate and very different returns on their cash.

Usually at least 20% if you will not live in the property, because CMHC does not insure a non-owner-occupied one-unit rental. If you live in one unit of a property with one to four units and rent out the rest, you can often qualify with less than 20% down.

Budget for the mortgage payment, property tax, insurance, strata fees if it is a strata, maintenance and repairs, property management if you hire it, and a vacancy allowance for the months it sits empty between tenants. Also plan for closing costs on purchase, including property transfer tax and legal fees, and keep a reserve for larger repairs.

DSCR, the debt service coverage ratio, is net operating income divided by your annual mortgage payments. A DSCR of 1.0 means the property earns exactly enough after operating costs to cover the mortgage. Below 1.0, the rent does not cover it and you make up the difference. Lenders use it when they look at income properties.

Yes. Rental income is taxable and is reported on Form T776, Statement of Real Estate Rentals. Expenses such as mortgage interest, property tax, insurance, strata fees and repairs are generally deductible. Capital cost allowance is optional. When you sell a rental, the capital gain is taxable. Confirm your situation with an accountant.

Yes, in part. Lenders commonly count 50% of the gross rent toward your qualifying income. Some lenders count up to 80% of the net rent when you have a documented rental history. Lenders differ, so confirm with your mortgage broker before you write an offer.

Gross rental yield is a full year of rent divided by the purchase price. It is a quick first filter because it ignores vacancy, expenses and financing. Use it to sort a list of properties, then use cap rate and cash flow to decide.

They are aimed at homes left empty. In BC an owner may face the provincial Speculation and Vacancy Tax, and in the City of Vancouver the Empty Homes Tax, if a home sits vacant. A home rented long-term is generally exempt from both, but you still have to file the annual declarations. Check the rules for your property each year.