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Informative post from Reddit today. Breaks down the math.

If you wanted to build a rental apartment building in Vancouver today, what rent would you need to charge for rent? Right now, we are looking at a site off 1st Ave in Vancouver.

The site is ready to go, with development permit, PLA and building permit pending. Site cost is $310/sqft.

Construction costs are estimated at $465/sqft.

All other costs are at $230/sqft (that’s consultants, taxes, levies, interest reserves, contingencies etc.).

Total cost for the project is at $1,005/sqft, or $68million.

Common loan-to-value for multifamily rental real estate is 50/50. So, debt would be $34million.

Plug that into a financial calculator with the following assumptions:

N: 360 (30yrs)… payments per year: 12… compounding per year: 2… CMHC commercial mortgage rate sub bank prime: ~6%... present value of loan: $34M…. future value: $0… compute the payment: $202,000 per month.

Or approx. $2,400,000 per year. CMHC will require a 1.20 debt service coverage ratio. So, we would need to have net operating income of $2,900,000. This would deliver a 1.47% cash return and a 4.2% cap rate. Since it’s new construction, the cap rate is higher than resale market (averages around 3%). Keep in mind, GIC’s today will deliver a stronger unlevered return than a Vancouver apartment building.

A building this size will cost approx. $600,000 per year to operate.

So, a total annual required rent of $3,500,000. This is for 96 units, with a mixture of 1beds, 2beds and studios… it would need an average rent of $3,000/month.

The two beds would need to rough out around $3,800/mo and the studios around $1,800/mo.

This is just to make a CMHC deal financeable. Good luck in the wild today, Vancouverites!