When you’re analysing an investment property, the numbers tell the story. But to read that story clearly, you need to know what each term means and how it impacts your return.
Whether you’re a first-time investor or building your portfolio, this glossary breaks down the most important terms you’ll come across when running your analysis.
Cash Flow
Cash flow is the money left over after all expenses are paid each month.
Formula:
Total Rent – (Mortgage + Taxes + Insurance + Utilities + Maintenance + Property Management Fees)
💡 Positive cash flow means the property is putting money in your pocket every month. Negative cash flow means you’re covering part of the costs out of pocket which can still be fine if the property has strong appreciation potential.
Try our free Cash Flow Calculator
Cap Rate (Capitalization Rate)
The cap rate shows how much income a property generates relative to its price if you bought it with cash.
Formula:
Net Operating Income ÷ Purchase Price
A higher cap rate is great for cash flow, but it can comes with trade-offs like lower property values or slower appreciation over time
💡 Use it to compare different properties or markets side by side.
Net Operating Income (NOI)
Your property’s total income minus operating expenses — but not including your mortgage.
Formula:
Gross Income – Operating Expenses
This gives you a clear picture of how profitable the property is on its own.
Operating expenses include things like property taxes, insurance, utilities (if paid by the landlord), maintenance, property management and landscaping.
Gross Income
The total money your property earns typically from rent, plus any extras like parking, laundry, or storage.
Operating Expenses
The day-to-day costs of owning a rental property. This includes property taxes, insurance, utilities, maintenance, and management fees.
💡 Operating expenses don’t include your mortgage or income taxes.
Cash-on-Cash Return
A measure of how efficiently your cash is working for you.
Formula:
Annual Pre-Tax Cash Flow ÷ Total Cash Invested
For example, if you invest $100,000 and earn $10,000 in cash flow, your cash-on-cash return is 10%.
What’s Considered Good?
In most Canadian markets, a 6–10% cash-on-cash return is considered solid for long-term, buy-and-hold rentals.
- Below 5% usually indicates a tighter market (like Toronto) where appreciation potential may offset lower cash flow.
- Above 10–12% often means stronger income but higher risk such as in smaller towns or less desirable areas.
💡 The “right” return depends on your goals: cash flow investors focus on higher percentages, while appreciation-focused investors may accept lower returns for stability and growth.
ROI (Return on Investment)
ROI looks at your total return (not just monthly income) – by including appreciation and mortgage paydown.
Formula:
(Cash Flow + Mortgage Principal Paydown + Appreciation) ÷ Total Cash Invested
💡 ROI gives the full picture of your long-term wealth building.
Appreciation
The increase in your property’s value over time. This can come from market growth or improvements you’ve made.
💡 In markets like Guelph, Waterloo, and Cambridge, steady appreciation has been one of the biggest wealth drivers for investors.
Mortgage Paydown
Each mortgage payment you make reduces your loan balance which builds equity in your property. It’s like forced savings that grows your wealth every month.
Equity
Equity is the amount of the property you truly own.
Formula:
Current Market Value – Mortgage Balance
💡 Your equity grows through appreciation and mortgage paydown and can later be leveraged to buy your next property.
Leverage
Using borrowed money (a mortgage) to buy an investment property.
Leverage allows you to control a large asset with a smaller amount of your own money – one of the biggest advantages of real estate investing.
Vacancy Rate
The percentage of rental properties that are unoccupied in an area.
💡 A low vacancy rate (under 3%) indicates strong rental demand and lower risk.
Break-Even Point
The rent amount you need to cover all of your costs — no profit, no loss.
Knowing this number helps you stress-test your deal and make sure it can weather interest rate changes or short vacancies.
Sensitivity Analysis
A what-if test that lets you see how your investment performs under different scenarios – for example, if rent drops by 5%, or your expenses go up.
💡 Smart investors always run a sensitivity analysis before buying.
Capital Expenditures (CapEx)
Major repairs or replacements that extend the property’s life – like a new roof, furnace, or windows.
These are separate from regular maintenance and should be budgeted for annually.
Appraised Value
The estimated market value of your property, determined by a licensed appraiser – often required by lenders during financing.
ARV (After Repair Value)
The projected value of a property after renovations are completed.
💡 Essential for BRRRR and flip investors to determine potential profit.
BRRRR Strategy
A popular investing model: Buy, Renovate, Rent, Refinance, Repeat.
This allows investors to recycle their capital and scale their portfolio faster by pulling equity out of completed projects.
Debt Service
The total amount paid toward your mortgage (principal + interest).
When analyzing a deal, this is one of your biggest monthly expenses.
Yield
The overall income return on your investment, typically expressed as a percentage of the property’s cost or current market value.
💡 In simple terms, it’s how much your money earns you.
Understanding these terms turns guesswork into strategy.
When you know how to calculate and interpret the numbers, you can confidently assess whether a property is truly a good deal or a financial trap in disguise.
