Break-Even Occupancy

Break-even occupancy tells a property owner or lender what fraction of the rentable space or revenue base must be occupied to exactly cover operating costs plus debt payments. It comes from setting net operating income equal to debt service plus expenses, then solving for the occupancy level needed so the property’s gross potential income is large enough to pay those obligations. If actual occupancy falls below this threshold, the property will not generate enough income to cover all required outflows.

Use this when evaluating stabilized property performance, underwriting a loan, or testing how much vacancy a building can absorb before cash flow turns negative. It is especially useful for apartments, office buildings, retail centers, and other income properties where occupancy directly affects revenue.

• Using actual collected income instead of gross potential income in the denominator
• Forgetting to include both operating expenses and debt service in the numerator
• Reporting the result as a dollar amount instead of an occupancy percentage