Capitalization Rate (Cap Rate)

Cap rate is net operating income divided by the price. A Lower Mainland fourplex bought at $1,600,000 that clears $64,000 a year after taxes, insurance, utilities, management and maintenance, but before any mortgage, is trading at a 4.0% cap rate. The measure deliberately ignores financing, so two buyers paying the same price for the same building get the same cap rate whether one of them pays cash and the other borrows 80%.

A lower number means you are paying more for each dollar of income, which is why well-tenanted apartment buildings in the region trade tighter than a rural acreage does.

Nothing in BC or federal law defines a cap rate, so the number in a listing is whatever the person who wrote it decided to include. Two things move it more in BC than most places. A quoted cap rate often assumes rents rise to market on turnover, and BC caps annual increases on a sitting tenant at 2.3% for 2026, so that uplift arrives only when a unit actually turns over.

Bill 14 also narrowed when an owner can end a tenancy to move in. The useful habit is to recompute the number on the rents being collected today and on your own expenses rather than the seller's, then remember it says nothing about tax: the cap rate is a pre-tax figure, and capital gains on the eventual sale are not in it.