In commercial multifamily real estate, there’s a language that is spoken when you are connecting with brokers, property managers and other investors in the profession. To avoid sounding like a novice, an investor must be fluent with the real estate terminology to be taken seriously. Let’s take a minute to breakdown one of those terms.
The occupancy rate that is required to cover all the expenses of an apartment is known as break-even occupancy rate. You can derive break-even occupancy rate by dividing the sum of the operating expenses and debt service by the gross potential income.
- For example, a 100-unit apartment with $1,000,000 in operating expenses, $500,000 in debt service and $2,000,000 in gross potential income has a breakeven occupancy rate of 75%
- $1,000,000 + $500,000 = $1,500,000
- $1,500,000 / $200,000 = 75%
By learning these concepts and terms, you’re separating yourself from the novice investor looking to be more active than passive. Here’s where you can learn more multifamily investing terms.