Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Break-even occupancy says how full a building must be to pay its bills. With $10,000 of potential monthly income, $3,000 of operating expenses and $4,500 of debt service, the property must be 75 percent occupied just to cover costs, or $7,500 of revenue a month. Every point of occupancy above that is profit, and every point below it is a loss, so a market with 90 percent occupancy leaves a cushion and one with 80 percent leaves little.
Before you rely on it
What to check
Compare the break-even with real occupancy in the submarket, not with the best building nearby. A cushion of several points is a sensible minimum.
The common error
Where people go wrong with break-even occupancy calculator
Leaving out reserves for repairs and turnover. Operating expenses that look complete can miss the large, irregular costs that arrive in a bad year.
Sensitivity evidence
How potential monthly income changes the break-even occupancy
| Potential monthly income | Break-even occupancy | Monthly break-even revenue |
|---|---|---|
| $8,000 | 93.8% | $7,500 |
| $9,000 | 83.3% | $7,500 |
| $10,000worked example | 75.0% | $7,500 |
| $11,000 | 68.2% | $7,500 |
| $12,000 | 62.5% | $7,500 |
Every input, tested
Which input moves the break-even occupancy most
| Input | Tested from | To | Break-even occupancy at each end | Swing |
|---|---|---|---|---|
| Potential monthly income | $9,000 | $11,000 | 83.3% to 68.2% | 15.2% (20%) |
| Monthly debt service | $4,050 | $4,950 | 70.5% to 79.5% | 9.0% (12%) |
| Monthly operating expenses | $2,700 | $3,300 | 72.0% to 78.0% | 6.0% (8.0%) |
Two variables at once
Break-even occupancy by potential monthly income and monthly operating expenses
| Potential monthly income \ Monthly operating expenses | $2,400 | $3,000 | $3,600 |
|---|---|---|---|
| $8,000 | 86.3% | 93.8% | 101.3% |
| $9,000 | 76.7% | 83.3% | 90.0% |
| $10,000 | 69.0% | 75.0% | 81.0% |
| $11,000 | 62.7% | 68.2% | 73.6% |
| $12,000 | 57.5% | 62.5% | 67.5% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Potential monthly income | $10,000 |
| Monthly operating expenses | $3,000 |
| Monthly debt service | $4,500 |
| Break-even occupancy | 75.0% |
| Monthly break-even revenue | $7,500 |
Where the inputs come from
Potential monthly income is the total rent if all units were leased, monthly operating expenses are the running costs of the property, and monthly debt service is the mortgage payment. Include all recurring costs and a reserve. The result shows how full the building must be to pay its bills. Use realistic rents, since asking rents on vacant units may be above what tenants will pay.
Using the break-even occupancy in a real decision
A lower figure means a safer property.
When the result stops applying
The calculation treats expenses as fixed, but some costs such as utilities and turnover rise or fall with occupancy. It does not include capital repairs or reserves unless you add them. Seasonal properties like short-term rentals swing more, and a market downturn can lower rents as well as occupancy. It gives no view of the property's return.
What to compare it with
Check coverage with the DSCR calculator and cash flow with the rental cash flow page. The vacancy loss calculator prices what an empty unit costs, and the NOI page shows the operating side. If break-even is high, raise rents, lower expenses or use a larger down payment.
People also ask
Frequently asked questions
What is break-even occupancy?
The percentage of potential rent a property must collect to pay operating expenses and debt service, so anything above it is profit.
What break-even occupancy is safe?
Many lenders and investors prefer under 80% to 85%, which leaves a cushion for vacancies and rent drops.
How can I lower break-even occupancy?
Reduce operating costs, lower the debt payment through a bigger down payment or a lower rate, or raise rents where the market supports it.