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Cap Rate Calculator: Net Operating Income and Cap Rate Explained
Quick answer: Net operating income (NOI) is a property's yearly income after vacancy and operating expenses, before mortgage payments. The cap rate is NOI divided by the price: $160,000 of NOI on a $3,200,000 building is a 5% cap rate. Lenders use the same NOI to work out how large a mortgage the property can carry.
Cap rate and NOI calculator
Enter the rents, vacancy allowance, other income and operating expenses. Leave mortgage payments out: NOI and cap rate are measured before financing.
Cap rate
5.21%
Operating expenses include property tax, insurance, utilities, repairs, management and a reserve. They do not include mortgage payments, depreciation or income tax.
What counts as an operating expense?
| Included in NOI | Not included in NOI |
|---|---|
| Property tax, insurance, utilities paid by the owner | Mortgage principal and interest |
| Repairs, maintenance, landscaping, snow removal | Depreciation (capital cost allowance) |
| Property management, even if you self manage | Income tax |
| A reserve for replacements such as roofs and appliances | One time capital improvements |
How do cap rates compare across property types?
Lower cap rates mean buyers pay more for each dollar of income, usually for safer or faster growing property. In Metro Vancouver, apartment buildings have recently sold at roughly 3.5% to 5%, and well leased retail at about 5% to 6%. Industrial demand stayed strong in 2026, with Metro Vancouver industrial vacancy at 2.6% in the third quarter. Nationally, CBRE reported multifamily as the only property type with slightly higher cap rates in the third quarter of 2026, while industrial held flat (CBRE Canadian Cap Rates Q3 2026). Ranges are approximate; each property is valued on its own leases and condition.
Why does a low cap rate make financing harder?
At a 4% cap rate, the income on a building may not cover a mortgage at today's rates with enough room to meet a 1.20 or 1.25 debt service coverage ratio. The lender then lends less than its loan to value limit, and the buyer needs a larger down payment. For rental buildings, CMHC MLI Select allows longer amortizations that lower the payment. Test the effect with the commercial mortgage calculator.
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Frequently asked questions
What is net operating income (NOI)?
Net operating income is a property's yearly income (rent and other income, less vacancy) minus its operating expenses such as property tax, insurance, utilities, repairs and management. It is measured before mortgage payments, depreciation and income tax.
How do you calculate cap rate?
Divide the net operating income by the purchase price or value and multiply by 100. A property with $160,000 of NOI bought for $3,200,000 has a 5% cap rate.
What is a good cap rate in BC?
It depends on the property and location. Metro Vancouver apartment buildings often trade at about 3.5% to 5%, and well leased retail at about 5% to 6%, lower than most of Canada. A higher cap rate means more income for the price, usually with more risk or less growth.
Do mortgage payments count as an operating expense?
No. NOI and cap rate are measured before financing so that properties can be compared regardless of how they are paid for. Lenders then compare NOI with the mortgage payments to get the debt service coverage ratio.
How do lenders use NOI?
Lenders divide NOI by the yearly mortgage payments to get the debt service coverage ratio, and use it with the cap rate to check the appraised value. They often recalculate NOI with their own vacancy and management allowances.
Want a lender's view of your numbers? Book an appointment with Asim Ali, ranked #4 in the CMP Top 75 Mortgage Brokers in Canada for 2026, or call 604‑591‑3590.