Rental Property and Cap Rate Calculator

Tax and mortgage rules on this page are set by the federal and Ontario governments and can change. Treat the calculator as a starting point. Check the numbers with your lender, lawyer and accountant before you buy.

How this calculator works

The calculator looks at the first year of owning a rental condo. It works in three steps.

1. Rent you collect. It starts with a full year of rent, then takes off a small share for vacancy.
2. Running costs. It subtracts the condo fee, property tax, insurance and repairs inside the unit. What is left is the net operating income.
3. The mortgage. It subtracts a year of mortgage payments. What is left is your cash flow.

From those numbers it works out three returns: cap rate, cash flow and cash-on-cash return. Each one answers a different question.

What is a cap rate?

A cap rate is the income a property earns in a year, shown as a share of its price. The formula is simple:

Cap rate = net operating income ÷ purchase price

Net operating income is the rent you collect in a year minus the running costs. It does not include the mortgage. That is on purpose. Leaving the mortgage out lets you compare two condos fairly, no matter how each buyer pays.

Here is an example. A condo costs $500,000. It earns $28,800 in rent after vacancy. Running costs come to $11,200. Net operating income is $17,600. Divide that by the price and the cap rate is about 3.5%.

Cap rate, cash flow and cash-on-cash return

• Cap rate tells you how the condo performs on its own. Use it to compare one unit with another.
• Cash flow is the money left each month after every bill, including the mortgage. If it is negative, you pay the difference from your own pocket.
• Cash-on-cash return is your yearly cash flow divided by the cash you put in. It shows what your own money earns.

The calculator also shows the break-even rent. That is the rent at which the condo pays for itself. You will see how much of the mortgage you pay down in the first year as well. That money is not cash in your pocket, but it does build your share of the condo.

What is a good cap rate for a condo?

There is no single good number. Cap rates move with prices, rents and interest rates. A useful test is to compare the cap rate with your mortgage rate. When the cap rate is lower, the mortgage costs more than the condo earns. Each dollar you borrow then lowers your return, and a bigger down payment helps.

Condos in high-priced areas often have low cap rates. Buyers there are counting on the condo gaining value over time, and that is not guaranteed. The calculator leaves price growth out, so you can see what the rent alone supports. For current prices and rents in each area, see the Mississauga condo market report or the Oakville condo market report.

Costs condo investors often miss

• Condo fees. The fee is often the largest running cost. Some fees cover heat and water and some do not, so check what you get. Read how to evaluate condo maintenance fees.
• Vacancy. Even a good unit sits empty between tenants. One empty month every two years is about 4% of the rent.
• Repairs inside the unit. The condo fee covers the building. Appliances, paint, flooring and plumbing inside your unit are yours to fix.
• Surprise bills from the building. If the building's savings run short, owners can get a one-time bill. The status certificate shows how healthy those savings are.
• Land transfer tax. Investors pay it in full. The first-time buyer rebate is only for a home you live in. Our land transfer tax calculator shows the amount.
• Property management. If you hire a manager, you pay a share of the rent each month. Add it under the assumptions.

Ontario rules for condo landlords

• Down payment. Lenders ask for at least 20% down on a rental you will not live in. Mortgage insurance is not offered below that.
• Rent control. Ontario caps yearly rent increases for most units. Units first lived in after November 15, 2018 are exempt. Many newer condos fall into that group.
• Building rules. Each condo sets its own rules on rentals, and many ban short-term stays. Some cities restrict them too. Our guide to rental vs owner-occupied condo buildings explains what to look for.
• Tenant rights. Ontario's tenancy law covers condo rentals. You must use the province's standard lease. You can only end a tenancy for the reasons the law allows.
• Income tax. Rent is taxable income. You can often deduct mortgage interest, condo fees, property tax and insurance. When you sell, part of any gain is taxable. An accountant can tell you what applies to you.

How to use the result

Start with real numbers from a listing. The price, condo fee and property tax are on every listing page. For rent, look at what similar units nearby are asking. Browse Mississauga condos for rent or Oakville condos for rent to check.

Then test the result. Raise the mortgage rate by one point. Add a month of vacancy. If the condo still works for you, the plan is sturdy. If a small change pushes it deep into the red, think again.

To see how neighbourhoods compare on rent and price, read our guides to the best Mississauga condos to invest in and the best Oakville condos to invest in. There are guides for Burlington and Milton too.

Already own a condo you rent out? Get a free estimate of what it is worth today.