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