What is the formula for calculating break-even occupancy?

The formula for calculating break-even occupancy is focused on determining the level of occupancy needed to cover all operating expenses and debt service. The correct formulation starts with a comprehensive view of the property's financial obligations – specifically, it includes both operating expenses and debt service.

The total costs (operating expenses plus debt service) are divided by Potential Gross Income (PGI), which represents the total income a property could generate if it were fully occupied and all units were rented at market rates. This ratio signifies the percentage of occupancy that must be achieved in order to cover all costs, ensuring the property does not operate at a loss.

This approach captures both the fixed costs associated with property management (operating expenses) and the financial obligations related to financing (debt service), thus providing a complete picture of what is necessary for the property to break even financially.

In contrast, other options either omit critical components of the costs involved (such as debt service) or inaccurately represent the relationship between operating costs and income, leading to an incomplete or flawed understanding of occupancy levels needed for financial stability.