Break-even occupancy calculator
Everything the property has to pay, divided by everything it could collect. Lenders call the result the default ratio, because it marks the occupancy at which the owner starts writing checks. This page reports it, the cushion above it in points and in dollars of rent, and what coverage looks like at every level down.
What happens as the building empties
The break-even row is where cash flow reaches zero and coverage reaches 1.00x, because those are the same statement measured from different ends. Below it the owner funds the difference.
| Occupancy | Collections | NOI | Cash flow after debt | DSCR |
|---|---|---|---|---|
| 100.0% | $1,000,000 | $650,000 | $170,000 | 1.35x |
| 95.0%Underwritten | $950,000 | $600,000 | $120,000 | 1.25x |
| 90.0% | $900,000 | $550,000 | $70,000 | 1.15x |
| 85.0% | $850,000 | $500,000 | $20,000 | 1.04x |
| 83.0%Break-even | $830,000 | $480,000 | $0 | 1.00x |
| 80.0% | $800,000 | $450,000 | -$30,000 | 0.94x |
| 75.0% | $750,000 | $400,000 | -$80,000 | 0.83x |
Annual convention throughout, and the occupancy factor is applied to the whole gross potential income. During an interest-only period debt service is lower and this number is lower with it; run it again on the amortizing payment, because that is the break-even the deal lives with for most of the term. It measures cash, not value: a property can sit above break-even and still be worth less than it cost.
Break-even moves every year of a hold: rents grow, expenses grow faster or slower, and debt service steps up the month amortization begins. A single-year figure is a snapshot of a moving trapdoor. Altyst reads the documents, builds the NOI, and reports coverage and break-even for every year of the hold against the downside case, not just the first.
One division, and what a lender means by it
Break-even occupancy is operating expenses plus replacement reserves plus annual debt service, divided by gross potential income. Above that occupancy the property produces cash. Below it the owner funds the difference out of pocket, which is why a credit officer calls the same figure the default ratio: it is the line where a borrower stops receiving money and starts sending it, and that is where most defaults begin. It is one of the few numbers a lender and an investor read in exactly the same way.
It earns a page because it answers the question a coverage ratio cannot. A DSCR states the cushion as a ratio at one assumed occupancy. Break-even converts that same cushion into units emptying, or a floor going dark, which is the form a partner or an investment committee can actually hold in their head. On the ladder above, the break-even row is exactly where cash flow reaches zero and coverage reaches 1.00x, because those are one statement measured from different ends. The ratio version is the DSCR calculator.
A worked example
Take the figures the calculator loads with, the same property the other tools on this site open on. Gross potential rent of $1,000,000, operating expenses of $340,000, reserves of $10,000 and annual debt service of $480,000 give a cash requirement of $830,000, so the property breaks even at exactly 83.0% occupancy. Underwritten at 95%, it collects $950,000, produces $600,000 of net operating income and covers the loan at 1.25x. The cushion is twelve points of occupancy, which is $120,000 of annual rent, or roughly five of forty apartments.
- Most of the trapdoor is the loan. Before debt service this property breaks even at 35.0%. The debt adds forty-eight points. Nothing about the building changed; the leverage moved the floor almost all the way up to where the property is standing.
- The reserve line is worth a point. Drop the $10,000 of reserves and break-even reads 82.0% instead of 83.0%. That is the size of the flattery available to anyone who quietly leaves reserves out, and it is exactly the line a lender puts back.
- Twelve points sounds comfortable until you check it. The number to compare it against is not a generic vacancy assumption, it is the worst occupancy your submarket has actually recorded. If that figure is 88% the deal has real room; if it is 84% the deal is one bad year from a capital call.
The interest-only trap
A loan with an interest-only period has two break-even occupancies, and the second one is higher. The worked example in the break-even occupancy glossary entry makes the size of it plain: on that property, annual debt service rises from $2,307,272 to $2,713,072 when principal starts, which pushes break-even from 79.2% to 87.2% and leaves under six points of cushion against an underwritten 93%. The deal did not get worse and the market did not move. The payment schedule simply arrived.
The failure mode is not the arithmetic, it is which number gets carried into the memo. A deal underwritten on the interest-only break-even, with a business plan that assumed a sale or a refinance before amortization begins, has measured a risk it is not taking and left the one it is taking unmeasured. Compute both, and put the higher one next to the exit assumption it depends on.
What belongs in the denominator
Gross potential income is annual income at full occupancy, before any vacancy deduction. Whether other income belongs in it comes down to one test: does that income fall when the building empties. Parking, storage, pet rent and utility reimbursements largely do, and belong in the denominator. A cell tower lease or a billboard does not, and putting it in a figure the occupancy percentage is applied to pretends it vanishes along with the apartments. Netting that income against operating expenses instead is the cleaner treatment. Both conventions are used, they give different answers, and the only real error is not saying which one produced the number you are quoting.
The occupancy itself should be economic rather than physical. A building at 95% physical occupancy granting two months free and carrying bad debt is collecting less than 95% of its gross potential income, and collections are what has to clear the cash requirement. The difference between the two measures is set out in economic versus physical occupancy, and how the income stack that feeds this page gets built is the NOI calculator.
What this page does not do
It computes one year. Break-even moves every year of a hold, because rents grow, expenses grow at their own rate, and debt service steps when amortization begins, so a single figure is a snapshot of a moving floor. It measures cash and not value: a property can sit comfortably above break-even and still be worth less than it cost. It does not know your submarket's occupancy history, which is the only benchmark this number has. And it is not advice: it is arithmetic on the figures you typed, stated with the conventions it uses, and nothing more.
Questions
What is break-even occupancy?
The occupancy at which a property's collections exactly cover its operating expenses, its reserves and its debt service, with nothing left over. Above it the property produces cash; below it the owner funds the difference. The formula is operating expenses plus reserves plus annual debt service, divided by gross potential income.
What is the default ratio?
The same number under a lender's name. A credit officer calls it the default ratio because it marks the point where the borrower has to start putting money in, which is the beginning of most defaults. Some lenders quote it as a break-even ratio expressed the other way, as the share of income already committed. The arithmetic is identical.
What is a good break-even occupancy?
Lower than the market's worst recorded occupancy, by enough to survive a surprise. The absolute level is mostly a statement about leverage rather than about the building: an unlevered property often breaks even somewhere in the thirties, and the same property at 65% leverage typically breaks even in the high seventies. Adding debt does not change the building, it moves the trapdoor closer to where the property is standing. The comparison worth making is against what your submarket actually did in its worst year, not against a generic vacancy assumption.
How is break-even occupancy different from DSCR?
They measure the same cushion from opposite ends. A DSCR states it as a ratio at one assumed occupancy: 1.25x means income can fall 20% before coverage reaches 1.00x. Break-even converts that same headroom into occupancy, which is a unit an investment committee can picture as apartments emptying or a floor going dark. On this page the break-even row is exactly where cash flow reaches zero and coverage reaches 1.00x, because the two are one statement. The ratio version is on the DSCR calculator.
Should replacement reserves be in the calculation?
If the property genuinely has to fund them from operations, yes, and this calculator gives them their own field so the choice is visible. Money set aside for roofs and systems leaves the building whether or not the reported NOI deducted it, and omitting it flatters the break-even by roughly a point on a typical deal. Where reserves are funded from an escrow raised at closing rather than from cash flow, they belong out of this number, and that is a fact about the capital stack worth stating rather than assuming.
Does an interest-only period change break-even occupancy?
Substantially, and this is the trap worth naming. Interest-only debt service is smaller, so break-even is lower, and it steps up the month amortization begins. A loan with three years of interest only and then a thirty-year schedule has two break-even occupancies and the second one is materially higher. If the business plan assumed a sale or refinance before the step, the calculation done on the interest-only payment is measuring a risk the deal is not taking while the one it is taking goes unmeasured. Run both.
Should other income be in gross potential income?
Only if it falls with occupancy. Parking, pet rent and utility reimbursements largely do, and belong in the denominator. Income that does not move with occupancy, a cell tower lease or a billboard, is better netted against operating expenses, because including it in a figure the occupancy percentage is applied to pretends it disappears when apartments empty. Either treatment is defensible and they give different answers, so state which one your number used.
Is break-even occupancy physical or economic?
Economic, in the sense that matters: the calculation is about collections, not about keys handed out. A building at 95% physical occupancy that is granting two months free and carrying bad debt is collecting less than 95% of its gross potential income, and the collections figure is the one that has to clear the cash requirement. Comparing a break-even computed on collections against a physical occupancy statistic is a common and expensive mismatch.
Can I put this calculator on my own website?
Yes, and it takes one line of HTML. There is no account and no key to request, so nothing can expire and break your page a year from now. The framed version loads no advertising script, ours or anyone else's, and sets no cookie on your readers. Keep the credit line under it and it is yours to use, including on a commercial site. The code is on the embed page.
Do you store what I type?
Not the figures. The math runs in your browser, nothing you type is sent to us, and there is no account or email field. Your scenario is written into the page address so you can bookmark it or send it to a partner, which does mean a link you share carries your figures with it. The page does carry the site's normal cookies, which the cookie notice lists; the embeddable version carries none.
The floor moves every year of the hold
Altyst reads the offering memorandum, the rent roll and the T-12, builds the income stack this page asks you to type, sizes the debt on all three lender tests, and reports break-even and coverage for every year of the hold, including the year amortization starts.