Break-Even Ratio Calculator Formula

Understand the math behind the break-even ratio calculator. Each variable explained with a worked example.

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Formulas Used

Break-Even Ratio

break_even_ratio = ((operating_expenses + annual_debt_service) / gross_potential_income) * 100

Total Annual Costs

total_costs = operating_expenses + annual_debt_service

Income Cushion at Full Occupancy

cushion = gross_potential_income - operating_expenses - annual_debt_service

Variables

VariableDescriptionDefault
operating_expensesAnnual Operating Expenses(USD)20000
annual_debt_serviceAnnual Debt Service(USD)28000
gross_potential_incomeGross Potential Income(USD)60000

How It Works

Break-Even Ratio

The break-even ratio tells you what percentage of potential gross income is needed to cover all property costs.

Formula

BER = (Operating Expenses + Debt Service) / Gross Potential Income x 100

Interpretation

  • Below 80%: Considered safe, property can withstand some vacancy
  • 80-85%: Moderate risk, limited room for vacancy
  • Above 85%: High risk, minimal margin for error
  • Most lenders prefer BER below 85%

    • Worked Example

    A property has $20,000 operating expenses, $28,000 debt service, and $60,000 gross potential income.

    operating_expenses = 20000annual_debt_service = 28000gross_potential_income = 60000
    1. 01Total costs: $20,000 + $28,000 = $48,000
    2. 02Break-even ratio: $48,000 / $60,000 x 100 = 80.0%
    3. 03Income cushion at full occupancy: $60,000 - $48,000 = $12,000
    4. 04The property needs at least 80% occupancy to cover all costs

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