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Real Estate Break Even Ratio

Real estate break-even ratio measures the ability of an investment property finance its debt service and operating expenses using its gross operating income. It is used by lenders to decide whether to finance an investment property. The higher the ratio, the less likely the investment property is able pay for itself. A ratio of 100% represents the break-even point. Over 100% means the investment property is operating at a loss and under 100% means the investment property is operating at a profit. The formula for break-even ratio is:

For example, the operating expenses of an investment property is estimated at $200,000 for the first year. The debt service is $150,000. The gross operating income is $400,000. The break-even ratio is therefore 87.50%

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