DeedWorthGuide · QuebecCap Rate for Canadian Rentals: How to Calculate and Read It
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In brief — The capitalization rate (cap rate) is a property's net operating income divided by its price. It measures the return of the building itself, before financing — which makes it the standard way to compare two income properties on the same basis. In Quebec it is called the taux global d'actualisation (TGA).
The cap rate is one of the first numbers an investor checks on an income property. It answers a simple question: how much does the building earn, as a share of its price, regardless of how you finance it? This guide shows how to calculate it, how to read it, and why not to confuse it with the gross rent multiplier.
What the cap rate (TGA) is
The cap rate divides a property's net operating income (NOI) by its value or purchase price. In Quebec the same ratio is called the taux global d'actualisation (TGA). A 5% cap rate means the building generates, after its operating expenses but before debt service, net income equal to 5% of its price.
Because it excludes financing, the cap rate describes the performance of the building itself, not of your mortgage structure. Two buyers with different down payments get the same cap rate on the same property at the same price — but a different cash-on-cash return.
How to calculate the cap rate
The formula is one line:
Cap rate = Net operating income (NOI) ÷ Purchase price
NOI is the property's gross income minus its operating expenses — municipal and school taxes, insurance, maintenance, management and a vacancy allowance — before the mortgage payment.
Example. A triplex listed at $600,000:
- Gross income: $42,000/year
- Vacancy allowance (4%): −$1,680
- Operating expenses (taxes, insurance, maintenance, management): −$12,000
- NOI = 42,000 − 1,680 − 12,000 = $28,320
- Cap rate = $28,320 ÷ $600,000 = 4.7%
Negotiated to $560,000, the same building shows a cap rate of 28,320 ÷ 560,000 = 5.1%: at equal income, paying less raises the cap rate.
Cap rate vs the gross rent multiplier
Two related indicators, often mixed up:
| Indicator | Formula | What it measures |
|---|---|---|
| Cap rate (TGA) | NOI ÷ price | Net return, as a % of price |
| Net income multiplier (MRN) | Price ÷ NOI | Years of net income to "pay off" the property |
| Gross rent multiplier (GRM / MRB) | Price ÷ gross income | Same idea, but on gross income (ignores expenses) |
The cap rate and the net income multiplier are inverses: a 5% cap rate equals a multiplier of 20 (1 ÷ 0.05). The GRM is quicker to compute but misleading — it ignores expenses, which vary a lot between properties. For a short definition of each term, see the investor glossary.
What is a "good" cap rate?
There is no universal threshold. A "good" cap rate depends on the market, the area and the risk:
- In a central, high-demand neighbourhood, properties sell high relative to income, so the cap rate is lower (the buyer is also paying for expected appreciation and stability).
- In a more peripheral area or one with higher rental risk, the cap rate is higher to compensate.
The only meaningful comparison is with similar properties in the same area, computed the same way (same expense and vacancy assumptions). A high cap rate is not "good" on its own if it reflects higher risk or understated expenses.
Cap rate vs real return: financing and tax
The cap rate stops at net operating income. It says nothing about two decisive things:
- Financing. Once the mortgage payment is out, cash flow can be negative even with a solid cap rate. The cash-on-cash return relates that cash flow to your actual down payment.
- Tax. The cap rate is a pre-tax number. What you keep depends on capital cost allowance, recapture at sale and your marginal rate.
Calculate your property's cap rate
Our profitability calculator computes the cap rate, cash flow and cash-on-cash return from the price, rents and expenses — with a realistic vacancy allowance. Analyze a property with DeedWorth →
FAQ
Is the cap rate the same as the TGA? Yes. "Cap rate" (capitalization rate) and "taux global d'actualisation" (the Quebec term) are exactly the same ratio: net operating income divided by price.
How do you calculate a cap rate? Cap rate = net operating income ÷ purchase price. NOI is gross income minus operating expenses (taxes, insurance, maintenance, management, vacancy), before the mortgage payment.
What's the difference between the cap rate and the gross rent multiplier? The cap rate uses net income and is a percentage return; the GRM uses gross income and is a multiplier. The GRM ignores expenses, so two properties with the same GRM can have very different cap rates.
Is a higher cap rate always better? No. A higher cap rate signals a better operating return relative to price, but often reflects higher risk or a less sought-after area. Always compare with similar properties in the same market.
Does the cap rate account for the mortgage? No. The cap rate measures the building's return before financing. For the return on your capital, look at cash flow and cash-on-cash, which include the mortgage payment.
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For information only. Profitability metrics depend on assumptions (expenses, vacancy) that must be checked for each property. Last verified: July 2026.