Plex Returns Come from Rent and Vacancy, Not from the Purchase Price

A plex buyer almost always opens with whether the price is good. That is the wrong entry point. Price produces no income: it is merely the denominator of a fraction whose numerator, the rent actually collected, decides everything. Two buildings bought for the same amount can return very differently. On the state of the segment this summer, see our read of the Montreal plex market in July 2026.

The ratio, and what it actually measures

The price-to-rent ratio divides the purchase price by annual rental income. The result is expressed in years: the number of years of gross rent required to cover the price paid. The same ratio circulates under the name gross rent multiplier, and it is the identical operation. Neither label changes what the calculation leaves out.

And it leaves out a great deal. Municipal and school taxes, insurance, routine maintenance, major repairs, management, financing: none of it enters a gross ratio. So it exists to compare buildings against one another quickly, provided the things compared are genuinely comparable, and never to conclude on the profitability of an acquisition. A low ratio flags a low price relative to rents; it promises no profit.

Two buildings, one price, two returns

Take an entirely hypothetical example, built for illustration and pointing at no real building or market. Two triplexes each sell for $750,000. The first collects $3,900 in monthly rent, so $46,800 a year; its ratio lands near 16.0. The second collects $4,500 a month, so $54,000 a year; its ratio drops to about 13.9. Same price, same unit count, a gap of more than two years of rent.

The example shows where the game is played. A buyer who negotiates $20,000 off the first building brings its ratio to roughly 15.6: a real gain, but a modest one. A buyer who works out that the first building's rents sit 15% below market is holding a variable of an entirely different magnitude, provided that gap is recoverable, which is a separate question.

Lease rent versus achievable rent

The rent written on the lease describes what comes in today. Market rent describes what a comparable unit would fetch if it came free now. Where the gap is wide, a return computed on leases in place understates the building's potential. True enough, and this is where many buyers make their reasoning error: they buy the potential at the price of the potential, then discover the pace at which it arrives.

That pace depends on voluntary departures, and it cannot be commanded. A long-occupied unit may stay occupied for years more. The prudent approach is therefore two separate calculations rather than one: the return on current rents, which is what you are buying, and the return on market rents, which is what you might reach one day. Decide on the first, hope for the second.

Vacancy is a local risk, not an average

No numeric vacancy rate appears in this article, and that is deliberate. A regional average says almost nothing about the vacancy risk of one specific building, whose demand turns on its street, its condition, the size of its units and the kind of household the district draws. Copying an average into a return calculation lends a false air of rigour.

What can genuinely be measured fits into four questions put to the seller and verified afterward. How long did units sit empty at the last few tenant turnovers? What did comparable units in the district actually rent for recently? How deep is local rental demand, in volume and in household type? And has the building gone through extended vacancy periods, for what reason?

One point deserves emphasis because it runs against intuition: vacancy hits the return twice. It removes income while it lasts, and it carries re-letting costs, advertising, restoration work, sometimes a concession on the first lease. A month empty therefore costs more than exactly one twelfth of that unit's annual income.

What a ratio can never separate

Two buildings with identical ratios can differ on everything that matters next: the age of the roof and windows, insulation quality, the heating system and who pays for it, unit sizes, parking. A ratio sees none of it. It ranks buildings on a single axis, and the temptation to make it say what it does not measure has to be resisted.

The order of operations before an offer

Establish the annual income actually collected first, leases in hand, not the income advertised. Compute the ratio on that figure. Run it again on district market rents, and keep both results side by side. Then document the occupancy history unit by unit. Price comes last, because it is the only one of the five variables negotiation can move, and the least decisive of the five.