BC Investment Property — Cap Rate, DSCR, Cash-on-Cash
Cap rate is what brokers quote you. DSCR is what your lender actually cares about. They diverge in a high-rate environment, and that gap is why so many would-be Lower Mainland investors get declined at the underwriting stage. A 4.5% cap-rate Langley duplex looks fine on a listing sheet — and the bank says no on a 1.05 DSCR.
Most BC banks won’t approve investment-property mortgages with DSCR under 1.20 at the qualifying rate. Cap rate doesn’t enter the underwriting decision.
Calculate
- Cap rate (NOI / price)
- 2.94%
- DSCR at contract rate
- 0.53 BELOW THRESHOLD
- DSCR at OSFI qualifying rate (7.50%)
- 0.45
- Cash-on-cash return
- -9.47%
- Effective gross income (annual)
- $59,280
- Operating expenses (annual)
- $24,042
- NOI (annual)
- $35,238
- Mortgage P+I (monthly)
- $5,494
- Annual debt service
- $65,922
- Monthly cash flow (after PITI + opex)
- -$2,557
- Down payment
- $300,000
- Cash invested (down + ~2% closing)
- $324,000
DSCR at the OSFI qualifying rate (7.50%) is below the typical 1.20 lender threshold. Most BC banks will decline this deal at the underwriting stage. Options: increase down payment, find a higher-rent property, or look at a B-lender / private deal at a wider spread.
Estimate only. Lenders vary in DSCR thresholds (1.10-1.30 range), opex assumptions (some impose a 50% expense floor regardless of your numbers), and willingness to count rental income at full vs. 50%-haircut rates. Get a same-day pre-qualification before subject removal.
Reproduce this number11 steps
| Step | Amount |
|---|---|
| Effective gross income = $5200/mo × 12 × (1 − 5% vacancy) | $59,280.00 |
| Operating expenses (property tax + insurance + maintenance + mgmt + strata) | $24,042.00 |
| NOI = EGI − OE | $35,238.00 |
| Cap rate = NOI / purchase price | $35,237.60 |
| Mortgage at 25% down (semi-annual compounding, 25-yr amort, 5.5% contract) | $900,000.00 |
| Annual debt service (monthly P+I × 12) | $65,922.00 |
| DSCR = NOI / ADS (lender threshold typically ≥1.20) | $534.53 |
| OSFI qualifying rate = max(5.5% + 2pp, 5.25%) = 7.50%; lender re-tests DSCR here (osfi.b20.stress_test) | $0.00 |
| Annual pre-tax cash flow (NOI − ADS) | -$30,685.00 |
| Cash invested (down + ~2% closing estimate) | $324,000.00 |
| Cash-on-cash return = annual cash flow / cash invested | -$30,684.68 |
| Total | $0.53 |
Computed from the BC Real Estate Codex · CC BY 4.0
Why cap rate fools you — the South Surrey 4-plex problem
A $1.6M South Surrey 4-plex grossing $7,000/mo total looks like a 4.4% cap rate after a 5% vacancy haircut and standard opex (property tax, insurance, 1% maintenance, 8% management). On the listing sheet that prints as a respectable Lower Mainland yield. Run the DSCR at a 5.5% contract / 7.5% qualifying rate over 25 years with 25% down ($1.2M mortgage): annual debt service is roughly $87,000; NOI is roughly $70,000; DSCR lands at 0.80 — well below the 1.20 lender threshold. The deal is dead on arrival.
To clear DSCR 1.20 at the qualifying rate, you’d need to either drop the price ($1.05M makes the math work), bump down payment to ~40% ($640K), or find a property where the rent / price ratio is materially higher (most BC investors who cleared underwriting in 2023-2025 did so on outside-Metro-Van plays — Mission, Chilliwack, North Cowichan — where 4-plex cap rates land 5.5-6.0%). Lenders will pre-qualify you on the math; brokers will quote you the cap rate.
Related
Verified sources (1)Click to expand
Every claim on this page is sourced to a primary government, regulator, or industry-association URL. We re-verify quarterly; the verification dates below show when each source was last confirmed against the live government page.
- OSFIretrieved 2026-05-08Guideline B-20: Residential Mortgage Underwriting Practices and Procedureshttps://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b20.aspx
osfi.b20.stress_test · v1View in Codex →Verified sources (2)Click to expand
Every claim on this page is sourced to a primary government, regulator, or industry-association URL. We re-verify quarterly; the verification dates below show when each source was last confirmed against the live government page.
- CMHCretrieved 2026-05-08Mortgage Loan Insurance Homeownership Programshttps://www.cmhc-schl.gc.ca/professionals/project-funding-and-mortgage-financing/mortgage-loan-insurance/cmhc-mortgage-loan-insurance-homeownership-programs
- Government of Canadaretrieved 2026-05-08· published 2024-09-16Government Announces Boldest Mortgage Reforms in Decadeshttps://www.canada.ca/en/department-finance/news/2024/09/government-announces-boldest-mortgage-reforms-in-decades-to-unlock-homeownership-for-more-canadians.html
cmhc.insurance_cap · v2View in Codex →