math

break-even

Break-even is the point at which income equals expenses, or at which a sale price covers all costs, so there is neither profit nor loss. In real estate math, it is used to find the minimum selling price needed to cover a loan payoff and selling costs, or the occupancy level a rental needs to cover operating expenses and debt service.

Exam tip: When a percentage cost such as commission is taken from the sale price, divide the amount needed by (1 minus the percentage), not multiply.
Example: A seller owes $282,000 and pays a 6 percent commission; to break even she must sell for $282,000 / 0.94, or $300,000.

1. A property has potential gross income of $240,000, operating expenses of $78,000, and annual debt service of $96,000. What is its break-even occupancy ratio?

Answer & explanation

Answer: C. Break-even occupancy = (operating expenses + debt service) / potential gross income = $174,000 / $240,000 = 72.5%. Using operating expenses alone (32.5%) ignores that the owner must also cover debt service to avoid negative cash flow.

Related terms & state variants

cash flow gross profit net proceeds percentage

Sources

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Last verified: 2026-10-23