Break-Even Occupancy

Break-even occupancy is the occupancy level at which a property's income exactly covers its operating expenses plus its debt service — the point where cash flow is zero. Below it, the deal can't pay its bills from operations.

How it's used: it's a downside screen that sits alongside DSCR. DSCR asks "how much cushion does the income have over the loan payment?"; break-even occupancy translates that into "how much can I afford to lose to vacancy before the deal can't pay?" A property leased at 95% with a 78% break-even has real room; one with an 92% break-even is fragile.

Why it matters: the gap between current occupancy and break-even occupancy is your margin of safety against a soft market, a lost tenant, or a slow lease-up. A high break-even — driven by thin margins or heavy leverage — means small swings in vacancy push the deal underwater. Lenders watch it for the same reason they watch debt yield.

Formula: Break-even occupancy = (Operating expenses + Annual debt service) ÷ Gross potential rent (+ other income)

Size the debt that drives it with the DSCR calculator, and see the full coverage build in the DSCR guide.