When analyzing a real estate deal, most investors focus on cash flow, cap rates, and appreciation potential. But there’s one crucial metric that often gets overlooked—one that could mean the difference between a profitable investment and a financial headache.

That metric? Break-Even Occupancy.

Why Break-Even Occupancy Matters

Break-Even Occupancy tells you the point at which your rental income is just enough to cover operating expenses and debt service. In other words, it shows how much revenue decline (lower rent, higher vacancy, or a combination of the two) your property can sustain before you start losing money.

For example, if a property has an 80% Break-Even Occupancy, that means you can afford up to 20% vacancy before dipping into negative cash flow. A lower Break-Even Occupancy means more cushion, while a higher one means you’re walking a tightrope.

The Hidden Risk in High Break-Even Occupancy

A high Break-Even Occupancy can be especially dangerous for smaller properties. Imagine you own a 10-unit building with a 90% Break-Even level. If just one unit goes vacant, you’re already operating at break-even. If two units go vacant? You’re losing money.

On the other hand, a property with a 70% Break-Even Occupancy offers more cushion. It means that even if multiple tenants leave, your investment remains stable.

How to Use This Metric in Your Investments

When evaluating a property, always check its Break-Even Occupancy. Here’s why it’s crucial:

✔ Better Risk Management – Lower Break-Even Occupancy properties are more resilient to market downturns and unexpected vacancies.

✔ Stronger Cash Flow Protection – More cushion means fewer chances of dipping into reserves.

✔ Smarter Investing Decisions – Knowing this number helps you compare properties beyond just cap rates and cash flow.

The Bottom Line

Whether you’re an active investor or a passive one, understanding Break-Even Occupancy can help you make smarter, safer decisions. In real estate, it’s not just about how much you can make—it’s about how much risk you’re taking to make it.

Are you factoring in Break-Even Occupancy in your deals? Send me a message, if this resonates or if you found it helpful.

Vessi Kapoulian

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