Income property is bought on fundamentals, not on how it looks. Two properties at the same price can be very different investments once you run the numbers. Here's the framework we use with clients.
Start with net operating income
Net operating income (NOI) is annual rent minus operating expenses — property tax, insurance, strata fees, maintenance, management, vacancy allowance. It deliberately excludes your mortgage, because NOI measures the property, not your financing.
Cap rate: the property's yield
Cap rate = NOI ÷ purchase price. It's how you compare properties on a like-for-like basis, independent of how each is financed. A lower cap rate usually means a more desirable (or more expensive) location; a higher one often carries more risk or work.
Cash-on-cash: your actual return
Because most investors use a mortgage, cash-on-cash return matters more to your pocket: annual pre-tax cash flow ÷ the actual cash you put in (down payment plus closing costs). This is where leverage helps — or hurts, if the property doesn't cover its costs.
Don't forget the costs people skip
- Vacancy — budget for it even in a tight market
- Maintenance and capital reserves — roofs, appliances and boilers fail on their own schedule
- Management — whether you pay a manager or your own time
- Rate renewal risk — model what happens when your mortgage renews higher
The BC-specific factors
Provincial rules shape returns here: rent increase limits set annually, the Residential Tenancy Act's rules on notice and eviction, the speculation and vacancy tax in designated areas, and the short-term rental restrictions now in force in much of the province. All of them affect what you can realistically earn.
A property that doesn't work on a spreadsheet rarely works in real life. Run the numbers before you fall for the finishes.
Thinking about income property? Talk to an advisor who'll model it with you.