Break-even occupancy, and the month it matters

Every other figure on a Datum listing answers the same question: what does this pay? Break-even occupancy answers a different one, and it is the question that decides whether you can hold the property through a bad year.

What it is

The share of the year the house has to be rented for the rent to cover everything -- the mortgage, the taxes, the insurance, the management, the maintenance and the reserve. Below that line the property costs you money out of pocket.

A house at 78% break-even can sit empty for about eleven weeks in a year before you are writing checks. At 94% it can sit empty for three.

Why it is not the same as cash flow

Two houses can clear the same $200 a month and be nothing like each other.

• A cheap house with a small loan and high taxes has a high break-even, because most of what the rent has to cover happens whether or not anybody lives there.
• A more expensive house with a larger loan and low fixed costs can have a lower one, even on thinner monthly cash flow.

Cash flow tells you what a good year looks like. Break-even tells you what a bad one costs.

What moves it

• The loan. More deposit, smaller payment, lower break-even. This is the lever that moves it furthest.
• Taxes and insurance. Both are due whether the house is full or empty, so both push the figure up directly. In the metros where insurance has run away, this is where you see it.
• Rent. Every extra dollar of achievable rent lowers it, which is why the rent estimate is worth reading carefully rather than skimming.

How to use it

Set it against your own patience. If a house needs to be 93% occupied and the submarket turns over tenants every eighteen months, the arithmetic is telling you something about the next five years that the monthly cash flow is not.

The figure is on every listing, and it moves with your deposit and your rate like everything else. Change either and watch it.