What's the difference between cap rate and cash-on-cash?

Cap rate measures the property's yield as if you bought all-cash (NOI ÷ price). Cash-on-cash measures the actual cash return on the cash you invest after financing (annual cashflow ÷ down + closing costs). Cap rate compares deals; cash-on-cash compares investments.

Should I include the mortgage in cap rate?

No. Cap rate is unlevered by definition — that's the whole point. Including debt service makes it cash-on-cash. Keeping them separate lets you compare a 100%-cash deal to a 25%-down deal on the same metric.

What expense ratio should I use?

For Quebec plexes: 30% if utilities are tenant-paid and the building is recent (post-2000), 35–40% for older buildings or when the landlord pays heat. Single-family rentals often run 25–30%. For an offer, build a line-item budget; for screening, the ratio is fine.

Is a higher cap rate always better?

Higher cap rate means more income per dollar of price — but the market doesn't pay that for free. It usually reflects higher vacancy risk, deferred maintenance, weaker neighbourhoods, or environmental/structural issues. Always pair cap rate with a quality assessment.

How does cap rate compare to GRM?

Gross Rent Multiplier = price ÷ annual gross rent. It ignores expenses, so it overstates yields on expense-heavy properties. Cap rate uses NOI, which is more honest. Use GRM for a 30-second screen, cap rate for a real comparison.

Why doesn't my cap rate match the listing broker's?

Brokers often use very low expense ratios (15–20%) or pro forma rents at the top of market. The calculator uses your inputs. If your numbers are reasonable and the broker's cap rate is dramatically higher, the broker is being optimistic — not you being pessimistic.

How do I improve cash-on-cash?

More leverage (lower down payment) raises CoC by spreading cashflow over less invested capital — but it raises risk too. The other levers: raise rents, cut expenses, refinance into a lower rate. The full Foncier analyzer lets you stress-test all three.

Returns · Quick check

Cap rate, cash-on-cash, in a single screen.

Two of the cleanest signals on a rental: cap rate (price-only) and cash-on-cash (financing included). Add a mortgage if you want both.

Assumptions

Purchase price

Annual gross rent

Operating expenses

Excluding mortgage. Taxes, insurance, maintenance, vacancy as % of gross rent.

Include financing

Down payment

Mortgage rate

AmortizationClosing costs

Results

Cap rate

5.0%

Cash-on-cash

-3.3%

NOI (annual)$27,300

Mortgage payment$2,622/mo

Annual cashflow$-4,164

Monthly cashflow$-347/mo

Total cash invested$125,000

Foncier the whole deal

This number is one of seventy.

Cap rate is a start. The full Foncier analyzer adds DSCR, IRR, ten-year cashflow projections, scenarios, side-by-side compare, and live community rent comps — for free, on your first three deals.

Create a free account See plans

How this is calculated

Cap rate measures the unlevered yield: NOI ÷ purchase price. Cash-on-cash measures the levered cash yield: annual after-debt cashflow ÷ total cash invested (down payment + closing costs). Cap rate ignores financing; cash-on-cash depends on it.

Worked examples

Cap rate and CoC on two real-world Quebec deals.

Mile End triplex

Cap 4.8% · CoC 6.1%

A $750,000 triplex with $46,800 in annual gross rent and a 35% expense ratio. With 25% down at 5.25% over 25 years and $20k closing costs, cap rate is 4.8% and cash-on-cash is 6.1%.

NOI$30,420

Cash in$207,500

Mortgage$3,367/mo

Cashflow$152/mo

Sherbrooke quadplex

Cap 7.2% · CoC 11.4%

A $480,000 quadplex with $50,400 in annual gross rent and a 32% expense ratio. With 25% down at 5.50% over 25 years and $14k closing costs, cap rate is 7.2% and cash-on-cash hits 11.4%.

NOI$34,272

Cash in$134,000

Mortgage$2,212/mo

Cashflow$1,272/mo

Cap rate questions

About cap rate and cash-on-cash.

It depends on the market. Montréal small multi-family typically trades 4.5–6%. Suburbs and secondary Quebec cities trade 6–8%. Class-A institutional product can be sub-4% in tight markets. Higher cap rate usually = more risk, not free money.

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