The first number any Kamloops investor hears when they look at an income property is the CAP rate. It's on every listing sheet, every agent email, every investor forum post. "Strong 5.8% CAP." "Priced at a 6.2 CAP." It gets quoted like it's the one number that settles the deal.
It isn't. Not even close.
Treat a headline cap rate the way you'd treat marketing copy: directionally useful, structurally misleading. Here's what's actually going on, and what to look at instead.
What CAP Rate Is — and What It Isn't
The formula is simple: Net Operating Income divided by Purchase Price. A $600,000 property generating $34,800 in NOI has a 5.8% CAP rate.
That number tells you something real: roughly how much income the property produces relative to its value, before you bring in any financing assumptions. If you're buying all-cash and comparing two identical properties in the same market, CAP rate is a reasonable shorthand.
The problem is that almost no one buying in Kamloops is buying all-cash. And almost no property analysis in a listing package is using realistic NOI.
CAP rate ignores financing entirely. A property with a 5.8% CAP and a mortgage at 4.31% (the Bank of Canada's February 2026 average for new uninsured 5-year fixed mortgages) looks like a comfortable positive spread. It isn't: at that rate the payment on a 25-year mortgage is about 6.5% of the loan every year, because it includes principal. Factor in 20% down, property transfer tax, and any deferred maintenance you're absorbing at purchase, and the actual cash-on-cash return on your deployed capital can be a fraction of the headline CAP rate, or negative. The CAP rate doesn't know or care about your debt structure. That's not a quirk; it's definitional. But most investors treat it as though it tells them something about what they'll actually earn.
CAP rate assumes 100% occupancy. This is the assumption that kills more BC Interior analyses than any other. The calculation in most listing packages uses gross scheduled rent — the number you'd collect if every unit was occupied, every month, with zero turnover. That's not a realistic assumption for any property. It's not even a conservative assumption. It's a fantasy presented as a baseline.
The NOI being used is often gross rent, not net. Legitimate NOI subtracts operating expenses: property management (charged as a percentage of collected rent; 9% is a reasonable assumption), maintenance and repairs, property taxes, insurance, and a reserve for capital expenditures. What listing sheets often show instead is a number calculated against gross rents with "expenses" listed as property tax and insurance only — nothing for management, nothing for maintenance, nothing for eventual roof, hot water tank, or appliance replacement.
The Three Ways BC Interior CAP Rates Get Inflated
Listing-sheet numbers tend to go wrong in the same few ways.
Stale rent figures. A property with tenants paying $1,400/month for a two-bedroom that would rent at $1,650 on the open market gets listed with the $1,400 rents in the cash flow analysis — because that's the defensible number — but the CAP rate in the headline reflects a pro forma at market rents. Sometimes it's the reverse: above-market rents from a previous lease cycle get used to juice the numbers on a property the seller knows will see turnover. Either can happen. The question to always ask is: are these actual rents or projected rents, and when were they set?
Vacancy gets ignored or set at 1–2%. In a market like Kamloops, long-term vacancy on a well-managed property might average 3–5% annually. That accounts for turnover time, the gap between tenants, the occasional month where a unit needs work before re-listing. A 1% vacancy assumption is not analysis; it's optimism. On a $3,000/month gross rent property, the difference between 1% and 5% vacancy is $1,440 per year — which at a 5.8% CAP represents nearly $25,000 in implied property value. That's not a rounding error.
No maintenance reserve. The Capital Expenditure reserve is the line item that separates professional analysis from back-of-envelope math. Most practitioners recommend reserving 1–2% of property value annually for CapEx (roofs, HVAC, plumbing, appliances). On a $600,000 property, that's $6,000–$12,000 per year that isn't showing up in the NOI calculation on most listing sheets. It's not imaginary money. Eventually you spend it.
A Worked Example: The 5.95% That Pencils at 3.5%
Here's an illustrative scenario for a common Kamloops income property: a four-unit residential building listed at $1,200,000, with rents averaging $1,700 a unit (CMHC's October 2025 average for a Kamloops two-bedroom apartment was $1,679).
Listing sheet says:
- Gross rents: $6,800/month ($81,600/year)
- Listed expenses: property tax $7,800 + insurance $2,400 = $10,200
- NOI: $71,400
- CAP rate: $71,400 / $1,200,000 = 5.95%
Looks reasonable. Now let's run real numbers.
Adjusted analysis:
- Gross scheduled rent: $81,600
- Vacancy at 4%: -$3,264
- Effective gross income: $78,336
- Property tax: $7,800
- Insurance: $2,400
- Property management at 9%: $7,050
- Repairs and maintenance (estimate): $4,000
- CapEx reserve at 1.25% of value: $15,000
- Total operating expenses: $36,250
- Actual NOI: $42,086
- Actual CAP rate: $42,086 / $1,200,000 = 3.5%
That's a gap of almost 2.5 points. Value the honest NOI at the listing's own 5.95% cap rate and the building is worth about $707,000, nearly $500,000 less than the asking price. You're not buying what the listing says you're buying.
(Corrected 6 October 2026. The first version of this example listed the building at $620,000, which doesn't fit its own figures: $75,000 of NOI on $620,000 is a 12.1% cap rate, not the 6.05% it stated, and the "actual" figure was really 8.5%, not 4.2%. The price, the tax line and the capital reserve have been rebuilt so the arithmetic holds. I've also replaced a 5.4% mortgage rate with the Bank of Canada's figure, and removed cap-rate ranges for Kamloops and Kelowna that I can't source.)
What to Use Instead
CAP rate has its place — it's useful for comparing unlevered returns across markets, and it's the industry standard for commercial valuation conversations. But for an actual go/no-go decision on a BC Interior residential income property, run cash-on-cash return against three scenarios: base case, conservative, and stress.
Cash-on-cash measures what you actually earn on the cash you actually put in: annual pre-tax cash flow divided by total cash invested (down payment, closing costs, immediate repairs). It incorporates financing, which is where most BC Interior investors live or die.
Reasonable baseline assumptions for a Kamloops analysis: 5% vacancy, 9% property management, 1.5% CapEx reserve, and maintenance at $200/unit/month. If a property still pencils at 7%+ cash-on-cash under those assumptions at current financing rates, it's worth a closer look. Few do. If it doesn't, the headline CAP rate doesn't change that.
Kamloops vs. Kelowna: Where This Matters More
In Kelowna, the cap rate problem is even more pronounced because prices have been bid up much further than rents. In February 2026 the Association of Interior REALTORS® put the Central Okanagan single-family benchmark at $1,056,600, about 1.6 times Kamloops's $661,000. CMHC's average two-bedroom rent in Kelowna ($2,118 in October 2025) was only about 1.26 times Kamloops's ($1,679). With prices 60% higher and rents 26% higher, the same building earns a lower cap rate in Kelowna, and buyers rationalise it with appreciation assumptions that may or may not materialise.
I don't have published cap-rate data for either city, and listing sheets aren't data. But that price-to-rent gap is part of why the cash flow math is at least possible in Kamloops. The listing-sheet CAP rate inflation is just as bad there. The market is smaller, so there's less transaction data to pressure-test the numbers against, which means individual listings can carry more distorted assumptions without being called out.
The work is the same in both markets: get the actual rent rolls, get the actual expense history, and rebuild the NOI from scratch. The headline number is a starting point for a conversation, not an answer.
If a seller or agent pushes back on your adjusted numbers, that's useful information too.
Sources: Bank of Canada — interest rates for new lending by chartered banks · AIR — Kamloops market, February 2026 (5 March 2026) · AIR — Interior market, February 2026 (5 March 2026) · CMHC — Rental Market Survey data tables
Written by Jagatjeet, as part of a public BC Interior real estate learning journey. Published 18 March 2026. Corrected 6 October 2026. Updated 7 October 2026. Jagatjeet is working toward a BC real estate licence and is not a licensed realtor. Nothing here is financial, legal or tax advice.