How to Evaluate an Income Property — What Taz Looks For

Numbers don't lie. But they can mislead you if you don't know which ones to look at.

Evaluating an income property is part science, part judgment. Here's how Taz approaches it — and what he looks for before advising a client to move forward.

Start with the Numbers That Actually Matter

Gross Rental Income

What does the property generate at full occupancy? This is your starting point — not your ending point.

Vacancy Allowance

No property is 100% occupied 100% of the time. A realistic vacancy factor of 5% is standard in most markets. In tighter markets it may be lower — but always account for it.

Operating Expenses

This is where many investors underestimate their costs. Operating expenses typically include:

A common rule of thumb is that operating expenses run 35–45% of gross income for a typical residential income property. If someone is showing you numbers with 10% expenses, ask harder questions.

Net Operating Income (NOI)

Gross income minus vacancy minus operating expenses = NOI. This is the number that tells you what the property actually produces before debt service.

Cap Rate

NOI divided by purchase price = Capitalization Rate. This allows you to compare properties of different sizes and prices on an apples-to-apples basis.

In Metro Vancouver and the Fraser Valley, cap rates on residential income properties are typically in the 3–5% range. Lower cap rates reflect higher-priced markets with strong appreciation expectations. Higher cap rates may indicate higher risk or weaker markets.

Cash-on-Cash Return

This measures your actual cash return on the cash you invested — accounting for your mortgage. It's the number that tells you how hard your down payment is working for you.

What Taz Looks for Beyond the Numbers

Numbers are the starting point. But Taz also evaluates:

The tenant situation — Are existing tenants paying market rent? Are they on fixed-term or month-to-month tenancies? BC's Residential Tenancy Act significantly affects what you can do with tenants.

The building condition — What's the age and condition of the roof, mechanical systems, and foundation? Deferred maintenance is a hidden cost that eats into your returns.

The neighbourhood trajectory — Is the area improving or declining? Income properties are long-term holds. The neighbourhood in 10 years matters as much as today.

The exit — How will you eventually sell? Is there future development potential? Does the lot have subdivision potential? What's the buyer pool for this type of property?

One More Thing

The best income properties are rarely the ones with the highest advertised cap rates. They're the ones where you understand every number, every risk, and every opportunity — and you've stress-tested your assumptions.

If you're evaluating an income property or looking for your next acquisition, Taz is happy to work through the numbers with you.

Book an Investor & Developer Consultation →

Be good to yourselves — because at the end of the day, we're all just trying to find our way home. Much love.

— Taz Cheema PREC, Impact Realty Group*