Next, let’s take a look average rents by neighbourhood. Once you do this, you will probably notice that rents don’t very all that much across the city. For example, if you look at a one bedroom apartments, the most expensive ones are in Rosedale costing an average of $2600 per month.

On the other side, the cheapest one bedroom apartments are on the west end hovering around $1700 per month. So basically, renters pay a 53% premium if they choose to live in Rosedale. But let’s look at the premium for real estate prices. A detached home in Rosedale averages around $4.3 million, which is almost four-fold of detached homes on the west end that start at $1.1 million. So the price ends up being a key driver for rent yields, and that’s why there’s a very clear correlation between price and rent yields as you can see in this chart.

Now, if you want to improve cap rates, you can choose to invest in a multiplex instead of a home with a secondary suite. Basically, once you have more units, your rent yields will improve and so you can see here that a triplex in the same starter neighbourhoods get a jump in rent yields compared to a 2 unit house in the same starter neighbourhood.

Next is the question about whether cash flows matter? Normally, as long as you have break even cash flows on a house, I’d say it’s fine and to look at total returns to steer your decisions. But we are in an exceptional time where we are expecting half a percent rate hikes possibly for the next couple of months. So in this case, as a safety net, you might want to choose properties that have better cash flows to make your investment safer from a risk standpoint.