In one sentence
The occupancy level at which a property's income exactly covers its operating expenses and debt service.
The longer version
Break-even occupancy tells a lender how much cushion exists before a property cannot pay its loan. A break-even of 75% means the property can lose a quarter of its occupancy before trouble.
It is a downside metric, complementing DSCR by expressing coverage as an occupancy threshold rather than a ratio.
Common questions
- How is break-even occupancy calculated?
- Divide operating expenses plus debt service by potential gross income. The result is the occupancy at which income just covers both.
- Why does break-even occupancy matter to lenders?
- It shows how much occupancy can fall before the property cannot cover expenses and debt service. A lower break-even means more cushion.
- How does leverage affect break-even occupancy?
- More debt raises debt service and therefore the break-even point, leaving less room for occupancy to fall.
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