What break-even occupancy measures
The ratio shows how full a property has to be before the owner stops writing checks. With $1,200,000 of gross potential income, $400,000 of operating expenses, and $500,000 of debt service, break-even occupancy is 75%. At 90% actual occupancy the property has a 15-point cushion; at 78% it is one lost tenant from a shortfall.
Lenders use the measure as a stress test alongside DSCR. Two properties with the same 1.25x coverage can have very different break-even points if one carries high fixed expenses and the other does not.
Reading the result
A lower break-even occupancy means more room to absorb vacancy, rent concessions, or slower lease-up. Interest-only debt lowers the break-even point during the loan term; amortizing debt or a higher rate raises it. Above 100%, the property cannot cover its obligations even fully leased at the assumed rents.
For transitional properties the useful version runs the stabilized budget: what occupancy does the finished plan need, and how does that compare with the market's typical occupancy for the property type?
Limitations
Gross potential income should reflect achievable market rents, not asking rents, and expenses should include reserves and management. Some expenses fall with occupancy (utilities, turnover) and some do not (taxes, insurance, debt service), so the real break-even point is slightly lower than a fixed-expense calculation suggests.
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