Understand the Numbers That Matter

Gross scheduled rent

The total rent expected if every unit is occupied and fully collected for the entire year.

Effective income

Gross scheduled rent plus reliable other income, less a reasonable allowance for vacancy and non-payment.

Operating expenses

Property taxes, insurance, landlord-paid utilities, repairs, routine maintenance, management, landscaping, snow removal, pest control, condominium fees, leasing costs and other costs required to operate the property.

Net operating income (NOI)

Effective annual income minus operating expenses. Mortgage principal and interest are not included in NOI.

Monthly cash flow

Income minus operating expenses and debt service. Positive cash flow can still be inadequate if the analysis excludes capital replacements or uses unrealistic rent.

Capital expenditures

Large, irregular replacements such as a roof, furnace, windows, sewer work, electrical upgrades, paving, appliances and major unit turnovers. Guelph's older housing stock makes this line item especially important.

Core calculations

• · Capitalization rate = NOI ÷ purchase price — operating yield before financing
• · Cash-on-cash return = annual pre-tax cash flow ÷ total cash invested — return on the cash you contributed
• · Gross rent multiplier = purchase price ÷ annual gross rent — fast but incomplete price-to-rent comparison
• · Debt-service coverage ratio = NOI ÷ annual debt service — capacity of operations to cover debt
• · Break-even occupancy = required occupied income ÷ potential income — how much occupancy is needed to cover costs

Appreciation is not cash flow. A property may increase in value over time, but appreciation is uncertain and does not pay this month's mortgage, insurance or repair invoice.