At What Rate do Operating Expenses Increase Annually in Ontario?

[Sam A.]

Rent increases at a rate of 1.6% per year. 

To calculate total accumulated cashflow, I calculate: income (+1.6% annually) - operating expenses (changing over time) - mortgage payments (constant). At what rate do operating costs typically increase? Does the cost of some expenses increase at a faster rate than others? Do utilities increase at a greater rate than, for example, property tax?

[Roy N.]

@Sam A. 

You could use the inflation calculator from the Bank of Canada website or lookup the Consumer Price Index for Canada.   For 2014, the BoC gives inflation at 2.03%, the CPI is presently pegged at 1.90%.

However, if you are performing discounted cash-flow analysis on a property you are analysing for purchase, I would encourage you to be ultra conservative:

a) assume no rent increase;

b) assume an operating cost increase of 2.5%;

c) assume no appreciation of property value.

If the numbers still work under the above assumptions, you should have a solid performer.  If they are marginal, you could change the rent increase to 1%, but you will be leaving yourself less of a buffer.