What this calculator does
Occupancy is usually reported as a result, the share of the year a property was let. It is more useful as a target. Costs are largely fixed whether a tenant is in place or not, so there is a particular occupancy below which the property stops paying for itself, and that figure is worth knowing before the vacancy happens rather than after.
The arithmetic is simple enough that the answer is often uncomfortable. A property with $30,000 of annual costs and $36,000 of rent at full occupancy breaks even at 83.3 per cent, which sounds like a lot of slack until you convert it: 8.7 weeks empty in a year, and anything beyond that is coming out of your own pocket.
The formula
Add operating costs and loan repayments to get the total that has to be covered, then divide by the rent at full occupancy. The result is the share of a full year's rent you need to collect. Subtracting that from 100 per cent and applying it to 52 weeks converts it into the vacancy you can absorb, which is the form most people find easier to act on.
| Term | Meaning |
|---|---|
| Full occupancy rent | What the property would collect with no vacancy at all. The denominator for everything here. |
| Operating costs | Rates, insurance, management, maintenance, strata. Everything except the loan. |
| Loan repayments | Kept separate because they depend on financing rather than on the property. |
| Break-even occupancy | The share of full rent needed to cover both. Above 100 per cent means the property cannot cover its costs even when always let. |
The inputs explained
| Field | What to enter |
|---|---|
| Annual rent at full occupancy ($) | Annual rent assuming no vacancy, which is weekly rent times 52 rather than what you collected last year. |
| Annual operating costs ($) | Everything you pay to hold the property except the loan. Include a realistic maintenance allowance rather than last year's actual spend. |
| Annual loan repayments ($) | Annual loan repayments. Use the full repayment if you want a cash break-even, or interest only if you want to treat principal as saving rather than cost. |
| Occupancy you expect (%) | The occupancy you actually expect, used to show the surplus or shortfall against the break-even figure. |
When to use it
Setting a vacancy tolerance
The weeks-empty figure is the practical output. If you can only absorb eight weeks and the local market typically sits empty for three between tenancies, you have room. If it sits empty for ten, you need a different number somewhere.
Testing a rent reduction
Dropping the rent to fill a vacancy faster raises the break-even occupancy, because the denominator shrinks. Run both numbers before accepting a lower rent, since a smaller rent held for longer is not automatically better.
Checking a property that cannot work
If the break-even comes out above 100 per cent, the property does not cover its costs even fully let, and no amount of good tenant management fixes that. The problem is the price, the rent or the loan.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much does the loan change the break-even?
Only the annual loan repayment changes.
| Annual loan repayment | Break-even occupancy | Surplus or shortfall | Weeks a year you can afford empty |
|---|---|---|---|
| $0 | 25.0% | $25,200.00 | 39.0 |
| $10,000 | 52.8% | $15,200.00 | 24.6 |
| $15,000 | 66.7% | $10,200.00 | 17.3 |
| $21,000 | 83.3% | $4,200.00 | 8.7 |
| $27,000 | 100.0% | −$1,800.00 | 0.0 |
| $30,000 | 108.3% | −$4,800.00 | none, costs exceed full rent |
What does the rent level do?
The costs are fixed and only the achievable rent changes.
| Rent at full occupancy | Break-even occupancy | Surplus or shortfall | Weeks a year you can afford empty |
|---|---|---|---|
| $28,000 | 107.1% | −$3,400.00 | none, costs exceed full rent |
| $32,000 | 93.8% | $400.00 | 3.3 |
| $36,000 | 83.3% | $4,200.00 | 8.7 |
| $40,000 | 75.0% | $8,000.00 | 13.0 |
| $45,000 | 66.7% | $12,750.00 | 17.3 |
Questions
Should I use the full loan repayment or just the interest?
Depends what you are testing. The full repayment gives a cash break-even, which is what your bank account experiences. Interest only treats the principal portion as saving rather than cost, which is fairer as a measure of the investment but will not pay your bills.
Is this the same as the vacancy rate?
No. The vacancy rate measures what happened. This works out what needs to happen, by solving for the occupancy that covers your costs.
Why does a break-even above 100 per cent appear?
Because costs exceed the rent the property can collect even with no vacancy at all. It is a real and common result for a highly geared purchase, and it means the shortfall is structural rather than a tenancy problem.
Does this include tax?
No. Negative gearing and depreciation can change the after-tax picture substantially in some jurisdictions, and none of that is modelled here.
What occupancy should I plan for?
That depends on your market and your property, not on a rule of thumb. What this gives you is the figure below which it stops working, which you can then compare against what agents in your area actually achieve.
For what the property costs you week to week, see property holding cost. For the income side there is cap rate and the 1% rule screener, and vacancy rate measures what actually happened.