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Breakeven Occupancy article

How is the Breakeven Occupancy calculated for commercial real estate investments and developments? What are the factors that the Breakeven Occupancy takes into consideration when shown in a proforma income statement, and what is ignored? Why is the Breakeven Occupancy useful for investment real estate? These are the questions that are explored using the Proforma Example in this article.

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Video Title: Learn about the Breakeven Occupancy

Video Publication_Date: Friday, May 19, 2017

Video Duration: 1:50

Video Description:
The topic for this commercial real estate investment analysis video is Breakeven Occupancy. Throughout the video planEASe Software is used to illustrate Breakeven Occupancy. The video does not use the current Proforma Example, but all the factors that the Breakeven Occupancy are sensitive to are covered.

201020112012201320142015
Total Gross Income$365,472$372,443$370,410$376,040$384,217$414,321
Total Operating Expenses$69,400$71,244$73,141$75,094$77,103$79,170
Total Debt Service$230,823$230,823$230,823$230,823$230,823$230,823
Breakeven Occupancy82.1%81.1%82.1%81.4%80.1%74.8%

In this case the 2010 Breakeven Occupancy was calculated by:

2010 Total Operating Expenses + Debt Service $69,400 + $230,823
divide by the 2010 Total Gross Income$365,472
equals the 2010 Breakeven Occupancy82.1%


Considers:
  • Scheduled Income (Current Year Only), Debt Payment (Current Year Only), Vacancies (Current Year Only), Expenses (Current Year Only)
Ignores:Why is Breakeven Occupancy useful?

For a quick look at how stable a property will be during the projected cash flow, look at the Breakeven Occupancy each year. A real estate investment might be very good, but still have a rough year or two if a lot of the leases are rolling over. The Breakeven Occupancy will show if there are years that you might need reserves for.

What is the Breakeven Occupancy Sensitive to:

Scheduled Income (Current Year Only), Debt Payment (Current Year Only), Vacancies (Current Year Only), Expenses (Current Year Only)

The Breakeven Occupancy is shown in these planEASe Reports:

Written by
Michael Feakins, CCIM
of planEASe Software