Cap Rate.
Net operating income, gross rental yield, and cash-on-cash return — calculated with Canadian semi-annual mortgage compounding.
Three numbers, cleanly.
Yield is a discipline. The address matters, but at $3M+ the buyer who runs the math has more leverage than the buyer who doesn’t.
Cap rate is the unfinanced yield on the property. It strips out debt to compare two assets head-to-head. A $3M Yorkville condo with $79,200 in NOI runs at a 2.64% cap rate. The same dollars in a Bridle Path estate at $5M with $130,000 NOI runs at 2.6%. Cap rate is how to compare them.
Gross rental yield is the simpler version: just rent over price. Useful as a fast benchmark; less useful for actual return.
Cash-on-cash returnis what the leveraged investor actually earns on their down payment. With Toronto luxury at 5%+ mortgage rates, it’s routinely negative — the deal is held for appreciation, not cash flow.
Frequently asked.
What is a cap rate?
Capitalization rate (cap rate) is the annual Net Operating Income (NOI) divided by the purchase price. It is the standard yield metric for income-producing real estate. Cap rate strips out financing — it tells you what an all-cash buyer would earn before debt service and tax. A 4% cap rate means the property generates 4% of its purchase price as annual NOI.
What is NOI?
Net Operating Income = effective gross rent (after vacancy) minus operating expenses (property tax, condo fees, insurance, maintenance, property management). NOI does NOT subtract mortgage payments — those are below the line. The same property has the same NOI whether the buyer pays cash or finances 50%.
What is cash-on-cash return?
Cash-on-cash return = annual pre-tax cash flow ÷ cash invested (down payment). It measures the yield on the actual cash a leveraged buyer puts up. Negative cash-on-cash means the rent does not cover the debt service plus expenses — common on Toronto luxury at current mortgage rates.
What is a typical cap rate for Toronto luxury condos?
Toronto luxury condos at the $3M–$10M tier typically run at 2.5%–3.5% cap rates as of 2026 — lower than mid-market because buyers are paying for the address and the long-term value, not the yield. Investment cap rates above 4% are rare in this segment.
Should I use semi-annual or monthly compounding for the mortgage?
Canadian fixed-rate mortgages compound semi-annually by law. This calculator uses the standard Canadian formula: monthly rate = (1 + annual rate / 2)^(1/6) − 1. The result is slightly less than what monthly-compounding would produce.
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