Rental property investors evaluate deals using two primary metrics: capitalization rate (NOI / price, ignoring financing) and cash-on-cash return (annual cash flow / cash invested).
Key metrics
- Cap rate: tells you the unleveraged yield of the property itself
- Cash-on-cash: tells you the leveraged return on the actual cash you put in
- NOI (Net Operating Income): effective rent minus operating expenses (not including mortgage)
Canadian market targets
Investors commonly target 5-7% cap rates in major Canadian cities, higher in secondary markets. Cash-on-cash returns of 8%+ on positive-cash-flow properties are considered strong.