Rental Property Cash Flow Calculator Canada

What the rental cash flow calculator does

After everything is paid, is there money left over? The calculator takes the rent, removes an allowance for vacancy and non-payment, subtracts property tax, insurance, condo or strata fees, utilities, repairs, an optional management fee and a maintenance reserve, then deducts the mortgage payment. It reports monthly and annual cash flow, the break-even rent, the operating expense ratio, the debt service coverage ratio and the principal repaid in the first month.

Cash flow differs from yield or cap rate. Yield shows how productive the building is; cash flow shows whether owning it is comfortable. A property can have a respectable cap rate and still lose money every month because the mortgage is large and the amortization short.

A worked example

A unit renting for $2,900 a month with a 3% vacancy allowance has effective rent of $2,813. With $3,600 a year of property tax, $1,400 of insurance, $200 a month of other costs and a 5% maintenance reserve, operating costs are about $757 a month. A $300,000 mortgage at 4.75% over 25 years costs about $1,702 a month, leaving cash flow of about $353 a month, or about $4,240 a year.

Net operating income is about $24,668 a year against $20,428 of mortgage payments, a debt service coverage ratio of 1.21, and the expense ratio is about 26.9%. Break-even rent is about $2,517. In the first month about $526 of the payment repays principal, so cash flow plus principal is about $880.

Building the rent line honestly

Start with the rent the unit commands today, not an optimistic listing figure or what you hope to charge after renovations. Then apply a vacancy and credit-loss allowance: even a well-run building loses days between tenants, and a non-paying tenant can take months to resolve at the provincial tribunal.

Two to five per cent of gross rent is a reasonable allowance in most Canadian markets. Tight urban markets justify the low end; student rentals, single-unit properties where one vacancy means 100% vacancy, and one-employer towns the high end. Every percentage-based cost is applied to effective rent, after the allowance.

The operating cost lines

Fixed costs are entered in dollars:

• Property tax: a municipal rate applied to assessed value, so it varies widely between, say, a Winnipeg duplex and a Vancouver condo. Use your tax bill or the listing, and expect small yearly increases.
• Property insurance: landlord coverage costs more than owner-occupier coverage because it adds rental income protection and higher liability limits.
• Other monthly costs: condo or strata fees, utilities you pay, snow removal, landscaping, pest control and routine repairs.

Percentage costs scale with rent:

• Property management: full management typically runs 8% to 12% of collected rent, often with a leasing fee when a unit turns over. Leave it at zero only if you will manage the property yourself, now and in five years.
• Maintenance and capital reserve: 3% to 8% of rent, higher for older buildings and houses, lower for newer condos where the strata fee covers part of the building envelope.

Reading the results

Monthly cash flow is the headline; annual cash flow is the figure to compare with the cash you have put into the deal.

Break-even rent is solved rather than added up, because vacancy, management and the reserve are percentages. Market rent well above it means real cushion; just above it means a single rate renewal could push you into the red.

The debt service coverage ratio is net operating income divided by mortgage payments. Lenders financing a rental or small multi-unit property commonly look for 1.10 to 1.25. Below 1.0 the building does not cover its own debt.

Principal repaid and cash flow plus principal keep the picture balanced: the principal part of each payment is forced saving, not an expense, so a property with modest negative cash flow while repaying several hundred dollars of principal a month is different from one that is simply losing money.

Where the tool stops

Cash flow is an operating measure. It ignores appreciation, the capital cost allowance that can shelter part of rental profit from income tax, and the capital gains tax due on sale. It assumes the mortgage payment stays constant, which holds only for the current term, so also model your renewal at a higher rate: a property that works only at today’s rate has no margin of safety.

All figures are estimates from the numbers you enter and are general information only, not tax, legal, mortgage or investment advice. Check operating costs against actual statements, confirm financing with your lender or broker, and ask a qualified accountant about the tax treatment of a Canadian rental before you commit.

About This Rental Cash Flow Calculator

Use this rental cash flow calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.