Lenders use the break-even ratio as one of their analysis methods when considering providing financing for a real estate investment property. Too high of a break-even ratio is a cautionary indicator.
Difficulty: Easy
Time Required: 5 minutes
Here's How:
- Determine the debt service for the property.
In this case we'll assume an annual debt service of $32,000
- Determine the annual operating expenses for the property.
In this case, we'll assume that management and direct operating costs annually are $47,000.
- Calculate the annual gross operating income of the property.
We'll assume a gross operating income of $98,000 annually.
- Add Debt Service to Operating Expenses and divide by Operating Income:
$32,000 + $47,000 / $98,000 = .81 or an 81% Break-Even Ratio.
Tips:
What You Need:
- Calculator
- Or get the spreadsheet below.
