Cap Rate Explained for Ontario Duplex Investors — What's Good in 2026?

What Is Cap Rate Really Measuring?

Cap rate (capitalization rate) is the annual return a property generates assuming you paid cash — no financing. Formula: NOI ÷ Purchase Price × 100. It tells you the income return on the asset itself, separate from how you choose to finance it. This makes it the universal comparison tool for income properties.

How to Calculate It Correctly

Step 1: Calculate gross annual rent. Step 2: Multiply by 0.95 for vacancy. Step 3: Subtract property taxes, insurance, and maintenance. This is your NOI. Step 4: Divide NOI by purchase price. Step 5: Multiply by 100 for the percentage. Most mistakes happen in Step 3 — people forget to subtract all operating expenses before dividing.

What's a Good Cap Rate in Ontario in 2026?

Windsor: 8–10% (strong). Oshawa: 7–8.5% (good). Kitchener-Waterloo: 7–8% (good). Hamilton: 6.5–7.5% (acceptable). London: 6–7% (tight). Ottawa: 5–6% (difficult). Toronto: 3–5% (very difficult to cashflow). The key benchmark: your cap rate should exceed your mortgage rate. At 5.25% mortgage rates, you need 6%+ cap rate to generate positive cashflow with 20% down.

The One Mistake Investors Make with Cap Rate

Cap rate is a comparison tool, not a decision tool. The mistake is using it as the only metric. A 9% cap rate in a market with 8% annual vacancy and declining rents is worth less than a 7% cap rate in a market with 2% vacancy and 5% annual rent growth. Always pair cap rate with vacancy rate, rent growth trend, and employment stability data before making a decision.

Cap Rate vs Cash-on-Cash: When to Use Each

Cap rate: use to compare properties regardless of financing. Cash-on-cash return: use to evaluate your actual return on cash invested (includes financing). A property with a 7% cap rate and 20% down at 5.25% might deliver 4% cash-on-cash. The same property with 30% down might deliver 6.5% cash-on-cash. Use cap rate to find good properties; use cash-on-cash to decide on your financing strategy.

Educational purposes only. Not financial, legal, or investment advice. Always consult licensed professionals before purchasing.