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Break-even occupancy calculator
Break-even occupancy is the share of gross potential rent a property must collect to pay its operating expenses and its loan with nothing left over. The gap between that figure and today’s occupancy is the cushion behind the loan: how much income the building can lose before the payment is at risk.
What is break-even occupancy on a sample property?
| Input | Value |
|---|---|
| Gross potential rent | $420,000 |
| Operating expenses | $180,000 |
| Loan amount | $2,000,000 |
| Interest rate | 7.00% |
| Amortization (zero = interest-only) | 360 months |
Break-even occupancy80.87%
- Annual debt service on $2,000,000 at 7.00% over 360 months: $159,673.
- Rent the property must collect: $180,000 + $159,673 = $339,673.
- Break-even occupancy: $339,673 ÷ $420,000 = 80.87%.
The property must keep roughly four units in five paying to cover its costs and its loan. At 95% occupancy your cushion is about fourteen points; at 88% it is about seven.
How is break-even occupancy calculated?
Break-even occupancy = (Operating expenses + Annual debt service) ÷ Gross potential rent
- 20,000+loan programs screened
- 5–8matches on a typical deal
- under an hourto the median first offer
- Zero upfrontto submit and compare offers
How do you read the result?
Compare the result with actual occupancy and the submarket. A break-even point far below current occupancy survives a bad leasing year; one close to it is a vacancy cycle away from a missed payment.
The figure depends on the expenses. Understated management, reserves or turnover cost flatter the result, and an underwriter will correct it upward, so run it with a management fee and a replacement reserve included.
Frequently asked questions
What is a good break-even occupancy?
Lower is safer, and the right level depends on the asset: a hotel with nightly turnover needs more cushion than an office building on long leases. Judge it against your actual occupancy and the submarket average.
Should I use gross potential rent or actual collections?
Gross potential rent, every unit at its scheduled rent, so the result is an occupancy percentage. Actual collections would shrink the denominator and overstate the break-even point, and the result would no longer read as an occupancy percentage.
Does the calculation include capital expenditures?
Only through a replacement reserve in operating expenses. Add one per unit or per square foot if you want the figure to match an underwriter’s.
How is break-even occupancy different from DSCR?
Coverage compares income to the payment at today’s occupancy; break-even occupancy asks how far occupancy can fall before the payment is uncovered. Two buildings with the same coverage can carry very different cushions if their fixed expenses differ.
How do I lower the break-even point?
Cut operating expenses through a tax appeal or an insurance re-bid, cut debt service with a smaller loan or a longer amortization, or raise rents at renewal. Running two loan structures through the calculator shows which moves it more.
What does YieldStack do?
YieldStack is a commercial mortgage brokerage. Every term sheet comes from a lender in the network and is subject to that lender's underwriting.
Does it cost anything to see terms?
No. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing.
Is financing guaranteed?
No. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Where does YieldStack operate?
Nationwide. YieldStack arranges commercial real estate financing nationwide. Every deal is business-purpose commercial financing, and the broker fee is paid only at closing.
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YieldStack is a commercial mortgage brokerage.