Rental break-even occupancy calculator

Occupancy is a share of rent, not a forecast

Annual gross rent is 12 × monthly gross rent. Effective rent is that gross times an occupancy, rounded half up to the nearest cent. This page finds the lowest occupancy that covers operating expenses, and the lowest occupancy that also covers the annual loan payment you enter.

Occupancy here means the share of gross rent treated as collected. It is not a prediction that a tenant will stay, and it is not a vacancy rate from a market report. Lesson 8 from the California Board of Equalization describes net operating income before debt service, and capitalization as a different calculation. This page does not divide income by a price.

Operating expenses and loan payments are separate

Operating expenses are the property taxes, insurance, maintenance and management you want inside net operating income. IRS Publication 527 discusses rental income and expenses for tax reporting. This page does not calculate taxable income.

The loan payment is principal and interest for the year. It is not an operating expense, and it is not subtracted inside net operating income. Cash flow is net operating income minus that payment. A loan payment of $0.00 makes the two occupancies equal, and both lines still appear.

$2,000 a month, $6,000 of expenses, $12,000 of loan payments

Gross rent for the year is $24,000.00. Expenses of $6,000.00 need 24.99998% occupancy, not 25%. Expenses plus the loan payment need $18,000.00. Half-up already collects $18,000.00 at 74.99998% occupancy, so the result is 74.99998%, not 75%. One millionth lower, effective rent is $17,999.99.

The income figures on that result use 74.99998% occupancy: effective rent $18,000.00, net operating income $12,000.00, and cash flow $0.00. The 24.99998% figure is only the operating-expense line.

Entering that occupancy as 25.00002% vacancy on the rental property ROI calculator, with the same rent, expenses and loan payment, uses the same effective-rent rounding and gives $0.00 cash flow. That calculator’s own 5% vacancy example is unchanged.

When the year’s rent is not enough

If operating expenses are $6,000.00 and loan payments are $20,000.00, full occupancy of the $24,000.00 still misses the loan by $2,000.00. The page shows the 24.99998% operating-expense occupancy and the shortfall. It does not show a cash-flow occupancy above 100%. The income figures then use 100% occupancy: effective rent $24,000.00, net operating income $18,000.00, and cash flow −$2,000.00.

A cap rate still needs a price you choose. That question stays on the cap rate calculator. The rent that produces a target cash flow is on the required rental income calculator.

Educational estimate only. Occupancy here is not a forecast that the property will stay rented.