At What Rate do Operating Expenses Increase Annually in Ontario?
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?
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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.