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How To Calculate the Break-Even Ratio for Real Estate Investment

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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:

  1. Determine the debt service for the property.

    In this case we'll assume an annual debt service of $32,000

  2. Determine the annual operating expenses for the property.

    In this case, we'll assume that management and direct operating costs annually are $47,000.

  3. Calculate the annual gross operating income of the property.

    We'll assume a gross operating income of $98,000 annually.

  4. 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:

  1. Get the top calculations in our Real Estate Financial Calculator Spreadsheet.

What You Need

  • Calculator
  • Or get the spreadsheet below.

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