BC Rental Investment Returns

Try a typical scenario

Cap rate vs. DSCR — a South Surrey 4-plex case study

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: drop the price to roughly $1.05M, increase down payment to ~40% (~$640K), or look at higher-yield areas (e.g. Mission, Chilliwack, North Cowichan, where 4-plex cap rates have typically been 5.5–6.0%).

Common questions about BC rental investment math

• What's the difference between cap rate and DSCR?+

  Cap rate (Capitalization Rate) = Net Operating Income ÷ purchase price. It's a property-yield metric that ignores how the deal is financed. DSCR (Debt Service Coverage Ratio) = Net Operating Income ÷ annual mortgage payment. It measures whether the rental income covers the debt — lenders use DSCR (not cap rate) to underwrite an investment-property mortgage. Typical A-lender threshold is 1.20 at the OSFI qualifying rate.
• What's a "good" cap rate in BC?+

  It varies by property class and market. Stabilized multi-family in core Metro Vancouver typically trades at 3.5–4.5% cap rates. Outside Metro Vancouver (Mission, Chilliwack, Fraser Valley edge) you can find 5.5–6.5%. A higher cap rate generally means higher yield but also higher risk (older buildings, less landlord-friendly rules, harder to insure, more vacancy). Cap rate alone doesn't tell you whether the mortgage will qualify — DSCR does.
• What is cash-on-cash return?+

  Annual pre-tax cash flow (NOI minus debt service) divided by your actual cash invested (down payment plus closing costs). It measures the return on your actual money down, not on the full property value. A property with a 4% cap rate and 25% down can produce a 6%+ cash-on-cash return because of leverage — but it also produces a negative cash-on-cash if the mortgage payment exceeds NOI.
• Are investment properties eligible for CMHC default insurance?+

  Generally no. CMHC default insurance is for owner-occupied properties. Non-owner-occupied (pure rental) properties require conventional financing — at least 20% down regardless of price. Some lenders offer "small rental" insured mortgages for 1–4-unit owner-occupied properties where one unit is rented, but the rules vary. Talk to a broker for your specific case.
• Why does this calculator show DSCR at TWO different rates?+

  Because lenders underwrite at both. DSCR at the contract rate shows whether the property cash-flows today. DSCR at the OSFI qualifying rate (contract + 2 percentage points, or 5.25% floor) shows whether the lender will approve the deal — they want to know you could still cover debt service if rates rose at renewal. A property that passes at contract but fails at qualifying gets declined.
• What about capital appreciation?+

  This calculator focuses on operating returns. Capital appreciation (the property going up in value) is a separate component of total return. In BC, historical residential appreciation has averaged 4–6% annually over long horizons, but it's volatile year to year. The cap-rate / DSCR math here tells you whether the deal pencils out on rental income alone — appreciation is upside on top.

Related

• · Mortgage payment calculator
• · What you can afford — max mortgage and purchase price
• · Cash to close — for buyers
• · The BC mortgage stress test — full reference
• · Codex — mortgage facts
• · The Rental tenancy reference in the Codex