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Rental Property ROI: The Real Canadian Math
Three numbers every Canadian landlord needs to understand — and the hidden costs that turn "positive cash flow" into a loss.
Updated June 2026 · 8 min read · Source: CMHC, CRA
The Three ROI Metrics You Need
Cash Flow
Monthly rent minus ALL costs. The only metric that tells you if you can sleep at night.
Cap Rate
NOI ÷ Purchase Price. Lets you compare properties regardless of financing.
Cash-on-Cash
Annual cash flow ÷ cash invested. Your actual return on money you put in.
Real Canadian Example: $700,000 Hamilton Duplex
Income
Unit 1 rent
$1,800/mo
Unit 2 rent
$1,600/mo
Total gross
$3,400/mo
Expenses
Mortgage (5%, 25yr, 20% dn)
$2,451/mo
Property tax
$417/mo
Insurance
$150/mo
Maintenance (1.5% of value)
$875/mo
Vacancy (5%)
$170/mo
Total expenses
$4,063/mo
Monthly cash flow
$3,400 − $4,063
−$663/mo (negative)
Cap rate (NOI ÷ value)
($40,800 − $17,544) ÷ $700,000
~3.3%
Cash-on-Cash
(−$663 × 12) ÷ $140,000 down
−5.7%
The lesson: The gross rent looked decent, but once maintenance reserves and a realistic vacancy factor are included, this property runs at a loss. This is the typical reality for Canadian real estate at current prices and rates.
Costs New Investors Always Miss
⚠
Maintenance & CapEx reserve (most underestimated)
Budget 1%–2% of property value per year. Roofs, furnaces, windows, plumbing — these are not if but when. A $700,000 property should reserve $7,000–$14,000/year.
⚠
Vacancy allowance
Even good landlords experience vacancies between tenants. Budget 5%–8% of gross annual rent (roughly 1 month vacant per year).
⚠
Property management (if not self-managing)
Typically 8%–12% of monthly rent. If you're not planning to manage yourself, this can turn marginal cash flow into a definite loss.
⚠
Income tax on rental profit
Net rental income is taxed at your marginal rate. For a high-income earner, losing 43%+ of net profit to taxes makes the real yield much thinner.
Why the 1% Rule Doesn't Work in Canada
The 1% rule (monthly rent ≥ 1% of purchase price) is a US heuristic designed for markets where $150,000 buys a house renting for $1,500/month. In Canadian markets:
| City / Property |
Price |
Rent |
Rent/Price |
| Toronto 2BR condo |
$750,000 |
$2,400/mo |
0.32% |
| Vancouver 2BR condo |
$900,000 |
$2,800/mo |
0.31% |
| Hamilton semi-detached |
$650,000 |
$2,800/mo |
0.43% |
| Calgary townhouse |
$550,000 |
$2,500/mo |
0.45% |
| Windsor detached |
$400,000 |
$2,200/mo |
0.55% |
None come close to 1%. The 1% rule simply doesn't apply to the Canadian market. Model your specific numbers carefully.
🏘️ Analyze Any Canadian Rental Property
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Frequently Asked Questions
What is a good cap rate in Canada?Market-dependent. Toronto/Vancouver: 2%–4%. Hamilton/Calgary: 4%–6%. Smaller cities: 5%–8%+. A higher cap rate usually means lower appreciation expectation or higher risk.
Is negative cash flow okay on a Canadian rental?Acceptable if you have strong conviction in appreciation and can cover the shortfall indefinitely. But it's a speculation on price growth, not an income investment.
What expenses can landlords deduct in Canada?Mortgage interest (not principal), property tax, insurance, maintenance and repairs, property management fees, accounting fees, and advertising. Capital improvements must be depreciated (CCA), not expensed in the year.