Here are some quick and easy formulas to use to calculate your break-even point:

1. Calculate your potential gross income.
Potential gross income is defined as the highest amount of income the property can generate when it is 100% occupied. For example:

10 apartments rented at $350.00 per week each your potential gross income is:

10 units X $350.00 p/week = $14,000 p/month

$14,000 X 12 months = $168,000 p/year.

2. Calculate your total operating expenses.
Add up all of your monthly expenses, including taxes, insurance, maintenance, repairs, utilities, landscaping, accounting, administration fees (if applicable), salaries, etc. Then multiply that number by 12 to get your yearly total.

3. Calculate your total mortgage payments for 12 months.
This is called your annual debt service. You can use this formula to find your break-even point.

Breakeven Occupancy Percentage Point = (Operating Expenses + Annual Debt Service) ÷ Potential Gross Income X 100.

Here’s a quick example for you.

The building is at 50% occupancy. At 100% occupancy, the building generates $168,000 and operating expenses are $60,000. Annual debt service is $46,000:

Percentage point of equilibrium occupation:

($60,000 + $46,000) ÷ $168,000 X 100 = 63%

This means that when the property reaches approximately 63% occupancy, it will break even. Below 63% occupancy, the property will operate in a negative cash flow situation and any occupancy above 63%, the property will be in a positive cash flow situation. Given these numbers, you should ask yourself these questions:

1. How long will it take to reach 63% occupancy?
2. Can I financially support the property until it reaches 63% occupancy?

Some questions that come to mind when it comes to Real Estate are:

1. How much growth will there be?
2. How long will it take?

The most fundamental problem here is:

What makes a property appreciate in value?

In general, income, particularly NET INCOME (after operating expenses), drives income property value. The basic principle here is that real estate investors actually buy the income stream from the property. If you have more income stream to sell, you can expect to get more for it. The faster and greater your income increases, the more likely the property value will increase.

Real estate prices will move based on supply and demand and not necessarily at the rate of inflation. Prices have been known to double in a few years and then do nothing for several years. The better located the property is, the greater the demand it will have. However, you will probably pay more for it, since the more expensive the property, the lower the return will usually be.

If you are concerned about job loss, you should look into income replacement insurance and disability insurance. This will allow you to sleep well at night.