For years, borrowing to buy an income property cost less than the building returned. The gap worked in your favour. Since October's rate hike, that gap has shrunk, and on a lot of buildings it has slipped to the wrong side. Here's what that changes in practice on the South Shore.

The backdrop: money is expensive again

On October 28, the Bank of Canada raised its policy rate to 2.50%. The banks followed, and prime climbed back to 4.70%. For a building buyer, that's the top line of the bill. As of November 10, an insured five-year fixed mortgage runs around 4.44% and a variable around 3.66%, according to nesto. But most investors don't buy with an insured mortgage. A property held as an investment, where the owner doesn't live in it, needs at least 20% down, which means conventional financing. There, the five-year fixed sits closer to 5.18%.

Hold on to that last number, because it's the one you compare against the building's yield.

4.25 to 4.75%
Capitalization rate on a Class A to B multi-residential building in the Montreal area, Q3 2026 (CBRE)
5.18%
Conventional five-year fixed rate, purchase with 20% down, as of November 10 (nesto)
$810,000
Median price of a plex on the South Shore in October, up 5% year over year (QPAREB)

When the price of money beats the yield

The capitalization rate is a building's yield before financing: net operating income divided by price. According to CBRE's survey for the third quarter of 2026, a well-kept multi-residential building in the Montreal area sells at a rate of 4.25% to 4.75%. In plain terms, a building bought for a million dollars throws off around $45,000 in net income a year, before mortgage payments.

See the problem. The building yields about 4.5%, and the money borrowed to pay for it costs more than 5%. So the mortgage eats more than the property produces on the financed portion. That's called negative leverage. For most of the last cycle it ran the other way: you borrowed at 2 or 3% to buy something yielding 4 or 5%, and every borrowed dollar lifted the return on your down payment. That engine has stalled, at least for now.

The math that sold income properties for a decade no longer works on its own. Now you have to run it by hand, building by building.

On small plexes, the kind most South Shore investors buy, the posted yield is often lower still. The buyer is also paying for location, for the option to live in one unit, and for the chance to raise rents over time. A median plex sells for $810,000 on the South Shore, up 5% year over year according to the QPAREB, and at that price the net income rarely covers a 4.5% rate. The gap with financing only widens.

What still holds the market up

If income properties keep selling despite this math, it's because the fundamentals are solid. Rents are rising, rental demand stays strong, and the vacancy rate remains low on the South Shore. An investor buying today leans less on leverage and more on two things: rent growth over time, and the principal that tenants pay down on their behalf. It's a return to fundamentals, not a wipeout. I walked through how to calculate a cap rate in my September piece, and the rules for financing a multi-unit building in the one on CMHC's MLI Select program.

What this means for you

  • You're selling an income property: today's buyer runs the numbers before making an offer. A building with below-market rents or deferred work will be negotiated harder than it would have been two years ago. The good news is that rising rents and low vacancy still support the value of a well-kept building. Start from a realistic valuation, not the price your building might have hit in 2022.
  • You're buying your first building: don't assume the mortgage will boost your return, because right now it often does the opposite. Run the numbers on the real figures: current rents, taxes, insurance, maintenance, and the conventional rate around 5%. If leverage is working against you, a larger down payment or a negotiated price can bring back the balance.
  • You're a seasoned investor: this is the kind of market that rewards patience. Motivated sellers reappear when financing gets expensive, and buildings to reposition, the ones where rents are catching up to the market, offer the margin that's missing elsewhere. Buy on fundamentals, not on hopes for a quick rate cut.

I work both sides of the market, residential and commercial, and on an income property it's often in the line-by-line math that a good deal separates from a bad one. Thinking of buying, selling, or just want to know what your building is worth today? Request a free evaluation or write to me directly. I answer personally.

Sources