How this calculator works
Rental yield and cap rate both measure the income return a property generates relative to its value, but with different levels of detail. Gross yield is the simplest:
Gross yield = (Annual rent ÷ Property value) × 100
Cap rate goes further: it starts from an effective gross income (annual rent less a vacancy allowance), subtracts operating expenses (property tax, insurance, maintenance, management, condo fees — excluding mortgage debt service), and divides the resulting net operating income (NOI) by property value. The calculator also works out your monthly cashflow (effective rent minus operating expenses minus your mortgage payment) and your ROI — annual cashflow as a percentage of the cash you actually invested (down payment, closing costs, and land transfer tax) — which reflects the effect of mortgage leverage. Finally, it recalculates your mortgage payment at a higher "stress" rate you can edit, showing cashflow resilience if you have to renew at a higher rate.
Worked example
Consider a $500,000 rental property let for $2,500 a month, with a 5%vacancy allowance and $6,000 a year in operating expenses, bought with a $400,000mortgage (80% LTV) at 5.5% over 25 years, and $120,000 of cash invested (down payment, closing costs, and land transfer tax). Gross yield comes out at exactly 6.00%. After the vacancy allowance and operating expenses, the resulting cap rate is noticeably lower than the gross figure — illustrating why cap rate is the more realistic measure investors typically rely on when comparing properties.
What affects your result
- Purchase price vs achievable rent — the single biggest driver of yield; markets with lower property prices relative to rents tend to show higher yields and cap rates.
- Vacancy allowance and operating expenses — property tax, insurance, maintenance, management fees, and condo fees all reduce cap rate and cashflow below the headline gross yield.
- Mortgage rate and LTV — a higher rate or larger loan increases your monthly mortgage payment, squeezing cashflow even where the underlying yield looks healthy.
- Cash invested — a smaller down payment increases leverage, which can raise ROI when things go well but also increases sensitivity to rate rises or vacancy.
- Interest rate changes — the stress test shows how resilient your cashflow is if you have to renew your mortgage at a higher rate in future.
A note on accuracy
This calculator computes on full, unrounded figures and rounds only for display. It does not account for personal income tax on rental profit, capital cost allowance (depreciation), or the specific tax treatment of mortgage interest for an investment property — consult a tax professional for guidance on your situation. For general guidance on rental properties in Canada, seeCMHCand the Canada Revenue Agency — Rental Income.