One of the most common mistakes new landlords make is confusing gross yield with real returns. A building that brings in $60,000 in annual rent can cost $50,000 to operate, leaving barely $10,000 before taxes and debt service. Understanding your cash flow tells you exactly whether your investment is working for you.
Revenue: more than just rent
Your building's gross potential revenue includes all unit rents plus ancillary income: separately rented parking, storage lockers, laundry machines, and roof antenna leases. From gross potential revenue, subtract estimated vacancy — typically 5% for tight markets, up to 10% for more volatile ones.
Operating expenses: the complete list
- Property taxes (municipal + school): often the largest expense
- Insurance (non-owner-occupied, liability): $2,000–$5,000/year depending on property
- Utilities if included in rent (heating, hot water, common area electricity)
- Routine maintenance and repairs: budget 1–2% of property value per year
- Property management: 5–10% of gross revenue if using a manager
- Accounting and legal: $1,000–$3,000/year depending on complexity
- Snow removal and landscaping of common areas
The 50% rule
In the absence of precise data, many experienced investors use the 50% rule: operating expenses represent roughly 50% of gross revenues. This isn't universal, but it provides a useful conservative estimate for preliminary deal analysis.
Net Operating Income (NOI)
NOI is the most important number for evaluating an income property. Formula: Effective Revenue - Operating Expenses = NOI. Example: $68,400 revenue - $32,000 expenses = $36,400 NOI. This number excludes financing, making it useful for comparing properties regardless of their capital structure.
Cap rate
Cap rate = NOI / Purchase price. A $600,000 property with $36,400 NOI yields a 6.07% cap rate. In major Québec cities in 2026, cap rates for small residential buildings (2–6 units) range from 4–6%, and 5–7% for larger buildings.
Optimizing your revenue
- Review rents at each lease renewal to track the market
- Identify parking, storage, or other elements that can generate additional revenue
- Convert included services to separately metered utilities when possible
- Refinance your mortgage when rates drop to reduce debt service
- Get multiple contractor quotes and use preventive maintenance contracts
Clear monthly financial statements are the foundation of sound property management. A property you're not tracking closely can appear profitable while slowly bleeding cash.