Investor glossary
The key terms of rental real estate investing, explained simply.
- Capitalization rate (cap rate)
- Ratio of net operating income to purchase price. It measures the property's return independent of financing.
- Profitability calculator →
- Net operating income (NOI)
- Gross rent minus operating expenses (taxes, insurance, maintenance, management, vacancy), before debt service.
- Cash flow
- What remains after all expenses and the mortgage payment. If positive, the property covers its own costs.
- Cash-on-cash return
- Annual cash flow divided by the money actually invested (down payment and closing costs). Measures return on your capital.
- Profitability calculator →
- Gross rent multiplier (GRM)
- Purchase price divided by annual gross rent. The lower it is, the more affordable the property is relative to its income.
- Debt service coverage ratio (DSCR)
- Net operating income divided by debt service. Above 1, the property covers its payments; lenders watch it closely.
- After-repair value (ARV)
- Estimated market value of a property once renovations are complete. Central to the BRRRR strategy.
- BRRRR calculator →
- Land transfer tax (welcome tax)
- Tax paid when buying a property, computed by brackets on value. It varies widely by province and municipality.
- Land transfer tax calculators →
- Capital cost allowance & recapture
- Capital cost allowance lowers tax while you hold; on sale, the depreciation taken is "recaptured" and taxed.
- Guide: CCA recapture →
- Refundable dividend tax (RDTOH)
- Part of a corporation's investment tax refunded when a dividend is paid. Explains why incorporation changes little the tax on passive income.
- Incorporation comparison →
- BRRRR
- Buy, rehab, rent, refinance, repeat: a strategy to recover your capital by refinancing on the after-repair value.
- Guide: BRRRR strategy →