Ottawa rentals have to beat 6.6%, not 4.5%. Almost none do

The pair of numbers everyone compares is the wrong pair

Every rental analysis I get starts the same way. Rent on one line, mortgage payment on the next, subtract. Then the rate conversation: is 4.5% good, will the Bank of Canada move in October.

The rate is not the number. The number is what the loan costs you per year, principal included, and on a 25-year amortization it is a lot higher than the rate. Lenders call it the mortgage constant. Nobody selling you an Ottawa rental mentions it, because it is where the deal dies.

What rental money costs in September 2026

The lowest insured five-year fixed for a homeowner was 4.09% on Ratehub as of Thursday evening, up from 3.94% in July as the bond selloff reached the posted numbers. A rental is neither insured nor owner-occupied, so it prices above that. Brokers who place investor files put A-lender rental money at 4.50% to 5.50%, with 20% down and a stress test at the contract rate plus two.

The constant is annual principal and interest divided by the loan.

At 4.5% over 25 years, 6.64%. At 5.0%, 6.98%. At 5.5%, 7.32%. Stretch to 30 years, about the ceiling on a conventional rental at an A lender, and 4.5% money costs 6.05%. Five per cent costs 6.40%.

Six to seven cents a year on every borrowed dollar, before a tax bill or a condo fee.

The hurdle is the constant times your leverage

The rule fits on a napkin. A property carries its own mortgage when the cap rate is at least the mortgage constant multiplied by the loan-to-value.

At 80% financing and 4.5% money over 25 years, the hurdle is 6.64% times 0.8, which is 5.3%. Over 30 years, 4.8%. At 5% money, 5.6% and 5.1%. Call it 4.8% to 5.6% just to reach zero cash flow with 20% down.

Look at what I have published since May. The cap rate post worked a $500,000 two-bed condo to 3.55% and a $750,000 Barrhaven detached to 2.82%. The Carleton student house came in at 2.97% on $4,000 a month. The condo reality check in June ran a $385,000 Centretown one-bed at 2.7%.

Not one gets within a point of the lowest hurdle. The best of them, the $500,000 condo, loses $735 a month at 4.5% over 25 years and $847 at 5%. That is not a bad deal picked to make a point. That is the market at 80% leverage.

The line I got wrong in May

In May I wrote that with 25% down and 4% money, a 4.5% cap rate property can produce 6% to 9% cash-on-cash. Run it. Four per cent money over 25 years is a 6.31% constant. A 4.5% cap at 75% financing returns minus 0.9% on cash. The 6% to 9% only appears once you count the principal the tenant pays down for you, about 7% of your equity in year one, plus the appreciation you are hoping for.

Paydown is real. It is not cash. June's condo, $817 out every month to buy $570 of equity, is what that line looks like in a bank account. Borrowing adds to your total return only when the cap rate sits above the interest rate itself. With Ottawa condos at 2.7% to 3.6% against 4.5% money, it is not close.

Turn it around: what a leveraged buyer can pay

Flip the formula and it becomes a price: net operating income divided by the constant times the loan-to-value is the most a leveraged buyer can pay and still carry the property.

The $500,000 condo throws off $17,752. At 4.5% and 25 years with 20% down, that supports a price of $334,000. At 30 years, $367,000. The Barrhaven detached at $21,136 of NOI supports $398,000 to $437,000 against a $750,000 ask.

So the break-even bid from an investor borrowing 80% sits 27% to 47% below what an owner-occupier pays for the same door. That is not a negotiating gap. That is a different buyer who has left the room.

Now read OREB's August numbers. Apartments sat at 6.3 months of inventory, a 43% sales-to-new-listings ratio and a median 42 days on market. Townhouses were at 4.1 months with active listings up 27% on last year and the benchmark down 4.0%. Those are the two segments where, in my experience, the investor used to be the marginal buyer. The bid that used to catch condos and townhouses on the way down is now a third below where sellers are.

Why the apartment buildings still trade

CBRE's Q2 survey has Ottawa multifamily at 4.50% to 5.00% for Class A and up to 5.80% for Class B, flat on the quarter. On 25-year money that clears nothing either. Amortization changes the answer. MLI Select, CMHC's insured program for five or more units, runs to 40 years at 50 points, 45 at 70 and 50 at 100. At 4% money over 40 years, the bottom of what brokers quote, the constant is 4.99%. CMHC's 1.10 debt coverage floor on an 85% loan puts the hurdle near 4.7%. Class A Ottawa clears it, barely, and only with the rent commitments attached.

A fourplex investor never sees that schedule. Thirty years is about the ceiling, and at 4.5% it still costs 6.05%. The gap between a building that pencils and a fourplex that does not is ten to twenty years of amortization, not skill.

What to do with this

Negotiate price, not rate. A quarter point on the rate moves the constant by about 0.17 and the hurdle at 80% leverage by 0.14. Ten per cent off the price of that $500,000 condo moves the cap rate from 3.55% to 3.94%, nearly three times the effect. The Bank of Canada held at 2.25% on Wednesday and said financial conditions have tightened since July. Waiting for October 28 is worth less than one hard conversation with a seller listed 42 days.

Do not fix a bad deal with more equity. At 5% money the $500,000 condo needs 50% down just to reach zero cash flow, and bought outright it pays 3.55% on half a million dollars while the bank charges 4.5% to lend it. More equity does not repair the return. It hides it.

The only other lever is NOI, which is why the basement suite is the one thing in this library that moves a house toward the hurdle: 4.05% combined in June's example against 2.82% without it, and about 17% on the suite dollars themselves. It is why an in-place rent below market deserves a look even where turnover now cuts the other way.

The list-price cap rate on almost every Ottawa residential rental is below the cost of the money to buy it. It was true at 4% and it is truer at 4.5%. Underwrite from the constant and the price you can pay writes itself.

If you have a rental in mind, send me the rent, the fees and the tax bill and I will give you the constant, the hurdle and the number you can offer. Twenty minutes, 613-262-6545 or fil@613realtor.ca. Or see what is sitting on the market right now.