Leverage Calculators
Rental property leverage.
Analyse how mortgage leverage amplifies your rental property returns. See the four pillars (cash flow, appreciation, mortgage paydown, and tax benefits) and compare leveraged vs all-cash purchase.
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The four pillars of real-estate return
Cash flow is the net rental income after expenses and mortgage. Appreciation is the increase in property value. Mortgage paydown is principal your tenants pay off for you. Tax benefits come from deductible expenses, interest, and Capital Cost Allowance. Leverage amplifies each pillar: a 20% down payment on a $500,000 property gives you 5:1 control and turns a 4% appreciation into a 20% return on your equity (before all other pillars).
In Canada, investment properties require a minimum 20% down (no CMHC insurance), and capital gains are taxed at a 50% inclusion rate up to $250,000 of gains (66.67% above). CCA recapture is taxed as ordinary income on sale.
TNAADO Inc. · Toronto
A rental is a business with a mortgage attached
Leverage on a rental behaves differently from leverage on a portfolio because the asset produces cash. Rent covers some or all of the carrying cost, so the return on your own capital arrives from three places at once: cash flow after expenses, principal being repaid by the tenant, and any appreciation. Interest on money borrowed to earn rental income is deductible against that rental income.
The mistake people make. Calling a property cash flow positive after counting only the mortgage payment. A realistic model carries property tax, insurance, condo fees, maintenance, vacancy, management and the capital items nobody budgets for: roof, furnace, appliances. The principal portion of the payment is not an expense and is not deductible, but it is not spending money either. Count it as equity, not as income.
Disclaimer
Educational estimates only. Real estate investing involves substantial risk. Consult licensed advisors before purchasing investment property.