Before buying any rental property, you need to know the numbers. These four metrics will tell you whether a property is a good investment or an expensive mistake.
Metric 1: Gross Rent Multiplier (GRM)
Formula: Purchase Price / Annual Gross Rent
Example: $500,000 property renting for $2,500/month = $30,000/year. GRM = 500,000 / 30,000 = 16.7. Lower GRM = better deal. In major Canadian cities, GRMs of 20–30 are common (low yields). Under 12 is generally considered strong.
Metric 2: Net Operating Income (NOI)
Formula: Gross Rent – Vacancy Allowance – Operating Expenses
Operating expenses include: property tax, insurance, maintenance, property management (8–12% of rent), utilities (if landlord-paid). Do NOT include mortgage payments in NOI.
| Item | Monthly | Annual |
| Gross rental income | $2,500 | $30,000 |
| Vacancy (5%) | -$125 | -$1,500 |
| Property tax | -$350 | -$4,200 |
| Insurance | -$100 | -$1,200 |
| Maintenance (5%) | -$125 | -$1,500 |
| NET OPERATING INCOME | $1,800 | $21,600 |
Metric 3: Cap Rate
Formula: NOI / Purchase Price. The cap rate tells you the return on a property if you paid all cash.
Example: $21,600 NOI / $500,000 = 4.32% cap rate. In most Canadian markets, cap rates of 4–6% are typical for residential. Commercial properties can reach 6–8%.
Metric 4: Cash-on-Cash Return
Formula: Annual Cash Flow After Mortgage / Total Cash Invested. This tells you the actual return on your down payment.
If you put 20% down ($100,000) and your annual cash flow after all expenses AND mortgage is $4,800, your cash-on-cash return is 4.8%. Most experienced investors target 6–10%+ cash-on-cash.
| Disclaimer: This article is for educational purposes only and does not constitute financial advice. All investments carry risk. Please consult a qualified financial advisor before making investment decisions. |