Break Even Occupancy

What is Break-Even Occupancy?

Break-Even Occupancy measures the percentage of units that must be rented to cover both operating expenses and debt payments.

Formula:
Break-Even Occupancy = (Operating Expenses + Debt Service) ÷ Gross Potential Rent

Why It Matters

  • Risk Buffer: Shows how much vacancy you can handle before losing money.

  • Investor Peace of Mind: Lower break-even means more resilience in downturns.

  • Lender Metric: Banks often check this alongside DSCR.

Example

Phoenix multifamily:

  • Operating Expenses = $25,000

  • Debt Service = $30,000

  • Gross Potential Rent = $70,000

Break-Even Occupancy = (25,000 + 30,000) ÷ 70,000 = 78.6%

This means you only need ~79% occupancy to stay afloat.

Phoenix Context

  • Strong submarkets like Surprise, Norterra, and the 303 corridor often have stable demand that keeps occupancy well above break-even.

  • Healthy projects usually aim for ≤85% break-even occupancy.

  • Value-add deals with high leverage can creep higher, which increases risk.

Final Thoughts

Break-Even Occupancy helps investors understand risk tolerance. The lower it is, the more flexibility you have to withstand vacancies or economic shifts.

As your Phoenix investor-friendly agent, I’ll help you analyze break-even alongside other metrics so you can confidently pick deals that fit your goals.

📞 Contact Me Today
Brian Harris
Investor-Friendly Real Estate Agent
📍 Phoenix, AZ
📧 [email protected] | 📞 602-684-0198
🌐 www.azdreamsource.com

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