Break-even occupancy is the share of gross potential income a property must collect to cover operating expenses and debt service. It is a direct measure of risk: the lower the break-even, the more vacancy the deal can absorb.
It combines the two biggest risks in rental property — vacancy and leverage — into a single percentage, which is why lenders and investors watch it closely.
Formula
Break-even occupancy = (Operating expenses + Annual debt service) ÷ Gross potential income
Gross potential income is the rent the property would collect at 100% occupancy (plus other income). If break-even occupancy is 85%, the property can sit 15% vacant before it stops covering its cash costs. Reserves and capital expenditures still have to be paid out of any surplus.
How to calculate it
- Total operating expenses and the annual mortgage payment.
- Divide by gross potential income at 100% occupancy.
- Compare the result to realistic vacancy in your market — the lower the better.
Worked example
Assume a $320,000 property renting for $2,600/month with typical expenses and a 7.00% loan. Running those numbers through the RentScope engine gives:
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FAQ
What is a good break-even occupancy?
Lower is safer. Many investors look for a break-even below the market’s normal vacancy plus a margin — for example, 80–85% in markets with 5–10% vacancy. Above 90–95% leaves little room for error.
How is break-even occupancy different from vacancy rate?
Vacancy rate is what actually happens; break-even occupancy is the threshold at which the property runs out of money. The gap between them is your safety margin.
Does break-even occupancy include the mortgage?
Yes — that is the point. It uses operating expenses plus debt service, so it reflects leverage.
How can I lower break-even occupancy?
Raise rent, cut operating expenses, reduce the loan (more down payment), or refinance to a lower rate.
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