RealInvestorX
Rental deal math
Break-even ratio: how much rent must you collect?
The break-even ratio is the share of potential rent a property needs just to pay operating expenses and the loan. The lower it is, the more room you have if vacancy or costs rise.
The formula
Break-even ratio = (operating expenses + loan payments) / gross potential rentWorked example
- Operating expenses (taxes, insurance, maintenance, management) = $8,816. Loan payments = $14,222. Total = $23,038.
- Gross potential rent = $2,300 x 12 = $27,600. Break-even ratio = $23,038 / $27,600 = 83.5%.
Illustrative inputs for learning, not market data or a forecast. Replace every number with figures from your own deal.
How to use it
That means about this share of the rent must be collected before you break even; the rest is your cushion for vacancy. A ratio near or above 100% means the property cannot cover itself at these inputs.
Frequently asked questions
Does the break-even ratio include vacancy?
Not as an expense. It shows how much occupancy you need, so vacancy is the cushion between the ratio and 100%.
How is it different from DSCR?
DSCR divides net operating income by loan payments. Break-even ratio compares total outflow with gross rent.
Do lenders use it?
Some do, as a stress test alongside DSCR. Requirements vary by lender.