How to read this result
In the default example, break-even occupancy is 70.00%. Results describe this input scenario; they are not a recommendation.
Change one assumption at a time to see how it affects the scenario. Compare periods and cost definitions consistently. Negative results show a modeled shortfall; an unavailable ratio needs a valid denominator.
Formula and methodology
Add annual operating expenses and annual debt service, then divide by gross potential income. The result is the share of modeled potential income required to cover those annual costs.
Enter percentages as whole numbers: 5 means 5%. When used as a factor, the calculation divides a percentage by 100. Percentage outputs multiply the final ratio by 100. Calculations retain precision internally; displayed amounts and rates are rounded to two decimals.
Variables and input definitions
- Gross potential income (USD/year)
- Annual property income at 100% occupancy. Minimum: 0.
- Annual operating expenses (USD/year)
- Recurring operating expenses. Minimum: 0.
- Annual debt service (USD/year)
- User-entered debt service. Minimum: 0.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| Gross potential income | $60,000.00 |
| Annual operating expenses | $18,000.00 |
| Annual debt service | $24,000.00 |
| Item | Default scenario |
|---|---|
| Break-even occupancy | 70.00% |
| Break-even vacant capacity | 30.00% |
Assumptions and limitations
Break-even occupancy is a simplified operating threshold and does not include every possible reserve, tax or capital expenditure.
Results describe this input scenario; they are not a recommendation.
The tool uses values you supply. It does not retrieve market prices, verify leases or inspect a property. Results exclude items outside the listed inputs. Review local requirements and the relevant contract when a payment, fee or allocation depends on them.
Common mistakes
This simplified model holds entered costs constant. Costs that rise with occupancy require a more detailed scenario. A break-even occupancy above 100% cannot be achieved by filling the modeled capacity alone.
Sources and method references
These references provide context for the method and terminology. They do not endorse this tool or validate your property assumptions.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
Frequently asked questions
What does the vacant-capacity result mean?
It is 100% minus required occupancy under the same assumptions. It describes the modeled vacancy allowance, not a recommended reserve or a legal limit.
Why can break-even occupancy be over 100%?
Required annual costs can exceed income at full modeled occupancy. Increasing occupancy alone would then be insufficient to cover those costs.