Break-Even Occupancy
Definition
Break-even occupancy is the occupancy level at which a coliving property's revenue exactly covers its costs — below it every month loses money, above it every additional occupied bed is profit. It is calculated by dividing fixed costs by the contribution margin per occupied bed, then by total beds.
The formula
Break-even occupancy = Fixed costs ÷ (Beds × Rate × (1 − variable cost rate))
- Fixed costs
- rent or debt service, insurance, licence amortisation, management, standing utilities
- Rate
- the rent you actually achieve, not the asking rate
- Variable cost rate
- the share of each let that is consumed by per-occupant cost — utilities, consumables, cleaning
Worked example
A ten-bed house on a master lease. Fixed costs £4,200 a month. Achieved rate £780. Variable cost runs at 18% of rent.
- 01Contribution per occupied bed = £780 × (1 − 0.18) = £639.60.
- 02Beds needed to cover fixed costs = £4,200 ÷ £639.60 = 6.57 beds.
- 03Break-even occupancy = 6.57 ÷ 10 = 65.7%.
The house needs 6.6 of its 10 beds let at £780 before it makes anything. Every bed above that contributes £639.60 a month, which is why the last three beds carry almost all the profit.
Break-even occupancy is the single most useful number for anyone on a master lease, because the lease payment falls due whether the beds are let or not. It tells you how much room you have before the building is costing you money, and it is the number to stress-test rather than the target occupancy.
The reason the top few beds carry the profit is arithmetic rather than insight: fixed costs are covered by the first two-thirds of your beds, so everything above break-even converts to contribution at close to the full rate. That is also why a two-point occupancy improvement is worth far more than a two-point rate improvement in most coliving models — and why turnover-gap compression is the cheapest occupancy anyone ever buys.
Recalculate it whenever fixed costs move. An operator who set break-even at lease signature and never revisited it after a licence fee, an insurance renewal and a utilities change is working from a number that has quietly drifted.
The common mistake
Using the asking rate instead of the achieved rate
Modelling break-even on the rate you advertise rather than the rate you actually sign produces a number that is optimistic by exactly the size of your average discount. If you routinely take £40 off to close, that is the rate to use. The version with the asking rate tells you the break-even of a building you do not operate.
Frequently asked
What is a typical break-even occupancy for coliving?+
In the buildings we have modelled, mid-sixties to low seventies is the common range for a leased property, and lower for an owned one where there is no lease payment. Anything above 80% is a warning: it means you have almost no margin for a soft quarter.
Does break-even occupancy include debt service?+
It should, if you are the one paying it. Break-even is about the cash that must be covered, so include mortgage payments or lease payments, not just operating costs. A version that excludes debt service tells you whether the building washes its face operationally, which is a different and less urgent question.
Break-even occupancy calculator
Read →
Vacancy cost calculator
Read →