Every building owner has a number in mind. It usually comes from a neighbour's sale, a tax assessment, or hope. The buyer's lender, however, will derive their number from one method: the income approach. If you own a Montreal revenue property, understanding this calculation is understanding your net worth.
The Core Formula
Value = Normalized Net Operating Income ÷ Market Cap Rate
A building producing $120,000 of defensible NOI in a segment trading at a 5% cap rate is worth $2.4M. The same building underwritten at $100,000 NOI is worth $2.0M. Every dollar of NOI you can prove is worth roughly $18–22 of price. That word — prove — is where sales are won.
What Counts as Defensible NOI
Buyers and their lenders rebuild your income statement from documents, not from your spreadsheet:
- Income: the actual rent roll, supported by signed leases. Parking, storage, and laundry income count if documented. "Potential" rent does not.
- Vacancy: even with full occupancy, underwriters apply ~1.5% for Montreal in 2026.
- Expenses: taxes (at post-sale assessment), insurance at renewal pricing, heating with the real split, maintenance with realistic per-unit reserves, management at 4–5% even if you self-manage, snow/landscaping contracts.
The most common gap between an owner's number and a buyer's number is expense normalization. Owners who have deferred maintenance and self-managed for years show artificially high NOI — buyers re-add those costs, and the price falls accordingly.
What Moves the Cap Rate Itself
Within Montreal's 2026 bands (detailed here), your specific building earns a better (lower) cap rate with:
- Rent upside that is reachable — units turning over near-term, legal rent positioning
- Financeability — buildings that score well under CMHC MLI Select attract more buyers at better leverage
- Capital condition — roof, brick, balconies, heating plant with documented work
- Clean tenancy file — no open TAL disputes, complete leases, no problem files
Adding Value Before You Sell
The highest-ROI work an owner can do in the 12–24 months before a sale is usually paperwork, not renovation:
- Document everything. Two years of clean expense records, organized leases, work invoices.
- Legalize the rents. Apply permitted increases consistently; a rent roll at legal maximum is worth more than one frozen by neglect.
- Fix what kills financing. Lenders walk from active water infiltration, dangerous balconies, oil tanks. These repairs return multiples of their cost.
- Present professionally. Photography and AI-staged visuals (our aimmo platform) measurably change how investors perceive the same building.
Getting a Real Number
A serious valuation takes your documents, normalizes the numbers the way a buyer's lender will, and prices the building against actual closed transactions — not asking prices. That is the first step of my seller-side process, and it is confidential and free. Owners are often surprised in both directions.
Jeremy Soares is an OACIQ-licensed residential and commercial real estate broker (H2731) in Montreal.