Question 1

What is cap rate and why does it matter?

Accepted Answer

The capitalization rate (cap rate) is the property's net operating income divided by its purchase price. It measures the property's earning potential independent of financing. A higher cap rate generally indicates higher yield but may also mean higher risk or a lower-demand area. In Toronto, residential cap rates often range from 3–5%.

Question 2

What is cash-on-cash return?

Accepted Answer

Cash-on-cash return measures the annual pre-tax cash flow divided by your total cash invested (down payment + closing costs). It tells you how much cash your cash investment earns in a year. A 6–8% cash-on-cash return is often considered good for Canadian residential investment properties.

Question 3

How do I account for vacancy in the calculator?

Accepted Answer

The calculator includes a vacancy rate input, typically set to 3–5% for established markets. This reduces your effective annual rental income to reflect periods between tenants, unexpected vacancies, or time needed for repairs. In tight rental markets like Toronto, actual vacancy can be lower, improving your returns.

Question 4

What is the minimum down payment for an investment property?

Accepted Answer

In Canada, investment properties require a minimum 20% down payment — CMHC insurance is not available for non-owner-occupied properties. For multi-unit properties (2–4 units) where you live in one unit, the minimum can be as low as 5–10%, and CMHC coverage applies to the owner-occupied portion.

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