Definition
A building's net operating income divided by its price: the yearly return it would give if bought with cash, before the mortgage and income tax.
The formula
Cap rate = net operating income ÷ purchase price. In Québec French it's called the taux global d'actualisation (TGA).
Example: a $900,000 plex with $36,000 of NOI has a 4% cap rate. It also works backwards: with $36,000 of NOI, targeting a 5% cap rate means paying no more than $720,000.
How to read it
Unlike the gross rent multiplier, the cap rate accounts for expenses: it compares buildings whose taxes, energy or upkeep differ. It says nothing about financing: to see whether the rents cover the mortgage, look at the debt service coverage ratio.
A cap rate is only as good as the NOI behind it. Redo it with your own figures: tax bills, insurance premiums, energy the owner pays, realistic maintenance and a vacancy allowance. The plex return calculator does the math for you.
Learn more
Glossary terms
Official sources
General information, not legal advice
This page summarizes the rules in force in Québec on the update date shown, for information only. It does not replace advice from a lawyer, notary or accountant, nor the official texts: when in doubt, rely on the sources above and on the Tribunal administratif du logement.