Break-even occupancy calculator

What break-even occupancy tells a buyer and a lender

Break-even occupancy is the share of a property's space or units that has to be paying rent before the income covers the bills. Below it, the owner funds the shortfall; above it, every extra unit leased adds cash flow. A low break-even means the property can absorb vacancy, a rent cut or an expense spike before it stops paying for itself, which is why buyers of apartment buildings, self-storage facilities and hotels look at it alongside the cap rate and the debt service coverage ratio.

The operating break-even leaves out the mortgage and measures the property alone. The full break-even includes debt service, so it changes with the loan: more leverage or a higher rate pushes it up.

Fixed and variable expenses

This calculator treats operating expenses as fixed, which is close for property taxes, insurance and most maintenance. Some costs fall when occupancy falls, such as utilities in a hotel or management fees charged as a percentage of collected rent, so the true break-even can be a little lower than the figure shown. For hotels, where many costs move with rooms sold, a fuller model separates fixed and departmental costs.

Use income that does not depend on occupancy, such as a rooftop lease or a fixed parking contract, as other income. Income that rises and falls with occupancy, like laundry in a half-empty building, is more conservatively left in the rent figure or omitted.

By property type

In an apartment building, potential rent is the unit mix at current or market rents, and the break-even is often quoted in suites. In self-storage it is usually measured on rentable square feet or units at street rates, so check which basis an occupancy figure uses. In a hotel the equivalent is the occupancy needed at the current average daily rate; our RevPAR calculator converts between occupancy, ADR and RevPAR. For a multi-tenant office, retail or industrial building, net leases recover most operating costs from tenants, so model the landlord's unrecovered costs and the effect of losing a tenant's recoveries along with its rent.

Arithmetic only. This is not an appraisal, a valuation opinion, a loan offer, or financial, legal or tax advice.

Showing occupancy in an offering memorandum

State the occupancy figure and its basis (units, square feet or revenue) and the date it was measured, and keep it consistent with the rent roll. Buyers will work out the break-even themselves from the operating statement and their own financing, so the most useful thing an OM can do is make the inputs clear. In OfferingStack, the Unit Mix page shows the unit types, counts and rents you enter, the Financial Overview page lists the income and expense lines, and the Financing Assumptions page calculates debt service and DSCR from the loan inputs.