The formula
Break-even occupancy = total annual expenses (including the mortgage payment) ÷ gross potential rent at 100% occupancy. Expressed as a percentage, it tells you what fraction of the year you need to be occupied just to break even on cash flow. Example: $18,000 in annual expenses on a property with $24,000 gross potential rent → break-even occupancy of 75%. You can absorb 25% vacancy before going cash-flow negative.
Why it's a useful risk metric
A low break-even occupancy means a wide safety margin — the property can withstand a prolonged vacancy or a problem tenant without wiping out your cash flow. A high break-even (above 90%) means the deal is fragile: even one month of vacancy per year could push you negative.
How to improve it
Lower the break-even by reducing fixed costs (refinance to a lower rate, self-manage if practical) or by increasing gross rents. A property where the break-even occupancy approaches your realistic vacancy rate deserves extra scrutiny before committing.
Frequently asked questions
What is a safe break-even occupancy rate?
Lower is better. Below 80–85% generally provides adequate buffer; above 90% leaves little room for vacancy.
Is break-even occupancy the same as my actual occupancy?
No. Actual occupancy is how full you are; break-even occupancy is the minimum level needed to cover all expenses.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.