How empty can it run before it runs you?

The line every income property has

Somewhere between full and empty there is an occupancy at which the rent exactly covers the operating expenses and the loan — one point lower and the owner writes a check every month. Break-even occupancy names that line. It is a stress test in a single number: where a DSCR says how comfortably the property covers its debt today, the break-even says how much tenancy it can lose before the covering stops. Lenders run it on every commercial deal; owners of anything with more than one tenant should too, because it prices the question a vacancy notice actually asks.

How the number is computed

Break-even occupancy = (operating expenses + annual debt service) ÷ (gross potential rent + other income) × 100. The numerator is everything the property must pay in a year; the denominator is everything it could collect at 100% occupancy, with vacant space counted at market rent. The monthly figure restates the same requirement in dollars — the collections the property needs every month to stay whole — and the margin of safety is today's occupancy minus the break-even, in percentage points. The default above breaks even at 74.8%: a duplex-to-fourplex hiccup survives it, a half-empty year does not.

Reading the result

Underwriting habit wants the break-even at or below roughly 85%, with the market running meaningfully above it — the gap is what absorbs a lost tenant, a slow re-lease or a soft season, and in a small building the arithmetic is chunky: one tenant in five is twenty points of occupancy. A break-even in the mid-nineties means a single vacancy runs the property at a loss until it is refilled. Above 100% — which this page reports honestly rather than capping — the property cannot cover its obligations even full, and the conversation changes from leasing to restructuring: raise rents, cut costs or refinance the debt service down. The result is also a lever board: watch the break-even move as you type a lower loan payment or a trimmed expense line, and you can see which fix actually moves the line.

Common mistakes

The flattering error is using physical occupancy for the margin while the break-even is built on collections — a building 95% full and 82% collected is 82% occupied for this purpose, and concessions, delinquency and below-market legacy leases all widen that gap. Quoting gross potential rent optimistically — vacant space at hoped-for rents rather than market — lowers the apparent break-even by inflating the denominator. Leaving other income out makes the property look more fragile than it is; leaving debt service out (the classic operating-only version) answers a different and gentler question than the one an owner with a mortgage actually faces. And the number is not static: a tax reassessment or an insurance repricing moves the line under you, which is why it is worth recomputing whenever the expense side changes.

Break-even is one building's stress test; a lender reads resilience across everything you own. The free Schedule of Real Estate Owned generator puts every property's income, expenses and debt in one lender-ready document, and the NOI calculator itemizes the expense line this page takes as one figure.