How to calculate rental cash flow in Canada
Cash flow is what’s left of the rent after every bill and the mortgage are paid. Start with the rent you expect to collect, take off an allowance for vacancy, then subtract operating costs: property tax, landlord insurance, maintenance, any condo fees and a property manager if you use one. What’s left is net operating income (NOI). Subtract the mortgage payment from NOI and you have cash flow.
Cash flow = rent collected − operating costs − mortgage payment
In the example, a $550,000 rental renting for $3,100 a month collects $36,084 in its first year after 3% vacancy. Operating costs come to $8,900, leaving $27,184 of NOI. The mortgage takes $29,223, so cash flow is about −$170 a month. The owner tops it up, which is common in Canadian cities at today’s prices. Owners accept that because the rest of the return builds as equity: the mortgage principal the rent pays off and the growth in value add $26,305 in the first year.
Canadian mortgages compound semi-annually
Canadian lenders quote fixed rates compounded twice a year, not monthly as in the US. The same quoted rate works out to a slightly lower effective rate, so the payment is a little lower. Many online calculators use US maths and overstate a Canadian payment. This one uses the Canadian method for fixed rates and monthly compounding for variable rates, which is how most variable mortgages are set up.
On the example’s $440,000 mortgage at 4.50% over 25 years, the fixed-rate payment is $2,435 a month. Compounded monthly at the same rate, it would be $2,446, about $125 more a year.
Rentals need 20% down
Mortgage default insurance from CMHC, Sagen or Canada Guaranty is what lets a buyer put down as little as 5%, but it’s only available when the owner lives in the property. A rental you won’t live in needs a conventional, uninsured mortgage, and that means at least 20% down. With 20% down, many lenders offer amortizations of 25 or 30 years, which lowers the payment.
There’s one way around it: buy a building with up to four units and live in one of them. Owner-occupied multi-unit homes can qualify for an insured mortgage with less down, and the rent from the other units helps pay for it. Set the down payment and amortization in the calculator to match your lender’s offer.
In the example, 20% down on $550,000 is $110,000. With $11,000 of closing costs, the cash needed to buy is $121,000.
Closing costs and land transfer tax by province
Closing costs count as cash you put in, so they lower your cash-on-cash return and your IRR. The biggest one is usually land transfer tax, and it depends on where the property is:
- Ontario charges a provincial land transfer tax, and Toronto adds a municipal one on top.
- British Columbia charges a property transfer tax.
- Quebec charges a transfer duty, often called the welcome tax, collected by the municipality.
- Manitoba, Nova Scotia, New Brunswick and Prince Edward Island each charge a provincial or municipal transfer tax.
- Alberta, Saskatchewan and Newfoundland and Labrador have no land transfer tax, only land title or registration fees.
On top of that, budget for legal fees, title insurance, a home inspection and any appraisal. First-time buyer rebates on land transfer tax usually require you to live in the home, so leave them out for a rental. Check the current rates for your province before you rely on the total.
Rent increases and rent control
The calculator raises the rent by the same percentage every year. In Ontario and British Columbia, many sitting tenants are covered by a yearly cap on increases, set by the province. If your unit is covered, set the rent increase at or below the cap, and remember that operating costs can rise faster than that.
Cash-on-cash return, cap rate and IRR
- Cap rate is NOI divided by the price. It ignores the mortgage. The example’s cap rate is 4.9%.
- Cash-on-cash return is one year of cash flow divided by the cash you put in. The example’s is −1.7%. The cash-on-cash return calculator explains it in detail.
- IRR is the yearly return over the whole time you own it, sale included. Held 10 years and sold after 5% selling costs, the example works out to 12.8% a year.
Buying a US rental from Canada
Choose United States, then Buying from Canada. The calculator works in US dollars, as your US lender and tenants will, uses US mortgage maths with monthly compounding, and shows the cash needed, the cash flow, the cash from a sale and the profit in Canadian dollars too, at an exchange rate you set.
- Bigger down payments. US lenders usually ask buyers who live in Canada for 25% to 35% down, and often charge a little more. The calculator starts from 30% down at 7.25%. On a $350,000 US rental, that’s $115,500 of cash needed with closing costs, or CA$159,390 at 1.38.
- Currency risk. The rent, the mortgage and the sale are all in US dollars, so what they’re worth to you in Canada moves with the exchange rate. The example’s first-year cash flow of +$1,894 is +CA$2,614 at 1.38, but +CA$2,462 if the Canadian dollar strengthens to 1.30. The exchange rate in the calculator is your estimate, not a live rate, so try a few.
- US tax filings. Rental income from a US property usually means filing a US non-resident return (Form 1040-NR) every year, and often a state return too. Without one, the US withholds 30% of the gross rent. When a non-resident sells, the buyer generally has to withhold 15% of the sale price under FIRPTA and send it to the IRS, with some exceptions, and you file a return to settle the actual tax.
- Canadian tax too. Canada taxes residents on their worldwide income, so the US rent and any gain go on your Canadian return in Canadian dollars, and a foreign tax credit generally offsets the US tax paid. If your foreign property cost more than CA$100,000 in total, you also report it to the CRA each year on form T1135.
These are facts to plan around, not advice, and the calculator’s results are before tax on both sides of the border. Talk to a cross-border accountant before you buy.
Taxes the calculator leaves out
Results are before tax. Rental profit is added to your other income and taxed at your own rate, and you can usually deduct mortgage interest, property tax, insurance, repairs and other costs of running the rental. When you sell, part of the gain is taxable, and the principal residence exemption doesn’t cover a property you only rented out. An accountant can tell you what applies to your situation.
Already own a rental and wondering whether to keep it? The rent vs sell calculator compares keeping it with selling today and investing the cash.
After you buy: track it from day one
Every number in this calculator is a forecast. Once you own the property, the real ones start arriving: the rent that actually came in, the repair you didn’t plan for, the tax bill that went up. Owners who write these down as they happen always know their real cash flow and equity. Owners who don’t end up rebuilding a year from bank statements at tax time, and rarely know which property is pulling its weight.
The simplest system is three habits:
- Run the numbers before you buy, as you did here.
- Track it from day one: rent, bills, repairs and the mortgage, as they happen.
- Review it every year against the plan: cash flow, equity and return on equity.
It works the same for one property or ten, and it’s far easier to start with the first than to catch up at the fifth. A spreadsheet can do it. EquityRise does it for you, with the same maths as this calculator.
Frequently asked questions
How much down payment do you need for a rental property in Canada?
At least 20% for a property you won’t live in. Mortgage default insurance, from CMHC or a private insurer, is only available when the owner lives in the home, so a pure rental needs an uninsured mortgage, and that means 20% down or more. If you live in one unit of a building with up to four units, you can usually put down less with an insured mortgage.
Why is a Canadian mortgage payment lower than a US one at the same rate?
Canadian lenders compound fixed-rate mortgages semi-annually, while US mortgages compound monthly. Compounding twice a year makes the effective rate a little lower, so the payment on the same loan, rate and amortization is slightly lower. Variable-rate mortgages in Canada usually compound monthly, like US ones.
What closing costs should I budget for when buying a rental in Canada?
The largest is usually land transfer tax, which depends on the province and, in Toronto, adds a municipal tax on top of Ontario’s. Add legal fees, title insurance, a home inspection and any appraisal or lender fees. First-time buyer rebates on land transfer tax usually require you to live in the home, so don’t count on them for a rental.
Which provinces have no land transfer tax?
Alberta, Saskatchewan and Newfoundland and Labrador charge land title or registration fees instead of a land transfer tax, so closing costs there are usually lower. Every other province charges a transfer tax of some kind, from Ontario’s land transfer tax to Quebec’s welcome tax and British Columbia’s property transfer tax.
Do rental properties in Canada cash flow?
It depends heavily on the city and the down payment. In expensive markets, a rental bought with 20% down at today’s rates often has little or negative cash flow, and owners rely on mortgage paydown and growth in value for most of the return. In smaller markets the rent is often higher relative to the price. Run your own numbers rather than relying on a rule of thumb.
How should I set the rent increase for a Canadian rental?
Use what you can realistically charge. Ontario and British Columbia cap yearly increases for many sitting tenants, with the limit set each year, while other provinces have fewer limits. If your unit is covered by a cap, set the rent increase at or below it.
Does the calculator include income tax or capital gains tax?
No. Results are before tax. Rental profit is added to your other income and taxed at your own rate, and when you sell, part of the capital gain is taxable. The principal residence exemption doesn’t cover a property you only rented out. An accountant can tell you what applies to you.
Can I use this calculator for a US rental bought from Canada?
Yes. Choose United States and answer Yes to Buying from Canada. The calculator uses US mortgage maths in US dollars, starts from a 30% down payment and a slightly higher rate, as US lenders usually ask of Canadian buyers, and shows the cash needed, cash flow, sale cash and profit in Canadian dollars at an exchange rate you set.
What US taxes apply to a US rental owned from Canada?
US rental income usually means filing a US non-resident return each year, and often a state return too; without one, the US withholds 30% of the gross rent. When a non-resident sells, the buyer generally withholds 15% of the sale price under FIRPTA, with some exceptions. Canada taxes the same income and gain and generally gives a foreign tax credit for the US tax. Talk to a cross-border accountant before you buy.