How to Calculate Break-Even Occupancy for a Vacation Rental (With a Worked Example)

Break-even occupancy is the single most useful number in short-term rental underwriting, and the one most listings never show you. It answers a simple question: how many nights per year must this property be booked before it stops costing me money? If the answer is close to what the market actually delivers, you have no margin of safety — regardless of how attractive the headline yield looks.

The formula

Break-even occupancy = (annual fixed costs + annual debt service) ÷ (net nightly rate × 365).

Where net nightly rate is your average daily rate (ADR) minus the variable costs incurred per booked night — platform commission (about 15%), cleaning, laundry, consumables and, if you use one, the management company's percentage. Fixed costs are everything you pay whether or not a guest arrives: property tax, insurance, utilities standing charges, internet, HOA or park fees, accounting, licence renewals and a maintenance reserve.

A worked example: two-bedroom apartment in Alicante

• Purchase price €240,000; acquisition costs 12% → total investment €268,800

• Market ADR €135; annual average occupancy in the market 62%

• Variable costs per night: 15% platform + €25 cleaning amortised + 18% management = €135 − €20.25 − €24.30 − €25 = €65.45 net per night

• Fixed costs: IBI €650, insurance €450, utilities & internet €1,900, community fees €1,200, licence & accounting €600, maintenance reserve €2,400 = €7,200 per year

• No mortgage: break-even = 7,200 ÷ (65.45 × 365) = 7,200 ÷ 23,889 = 30% occupancy (110 nights)

• With a 60% LTV mortgage at 3.6% over 25 years (€144,000 loan → €8,750 annual debt service): break-even = 15,950 ÷ 23,889 = 67% occupancy (244 nights)

The same apartment is very safe unlevered (market occupancy of 62% is more than double the 30% break-even) and dangerously tight with a 60% mortgage (67% break-even versus 62% market occupancy). The leverage did not change the property; it changed the margin for error.

What a good margin looks like

• Break-even more than 20 percentage points below market occupancy: robust — the property survives a poor season or a new competitor

• Within 10–20 points: acceptable if the market is stable and you have cash reserves

• Within 10 points or above: the investment depends on everything going right

Common mistakes

1. Using the peak-season ADR instead of the annual average — a €220 August rate is not your nightly rate in November

2. Forgetting that management fees are usually charged on gross revenue, including the cleaning fee guests pay

3. Leaving out the maintenance reserve — 1% of property value per year is the minimum for furnished rentals with high turnover

4. Treating tourist tax as income — it is collected from guests and remitted, not kept

5. Ignoring minimum-stay rules and licence night caps, which set a ceiling on achievable occupancy

Break-even and regulatory night caps

If a city caps short-term letting at 90 nights (Vienna residential zones), 120 nights (Paris primary residences) or 30 nights (Amsterdam), your maximum occupancy is capped at 25%, 33% or 8%. Any property whose break-even occupancy exceeds the legal cap cannot work as an STR — full stop. This is the fastest single check you can run before spending time on a listing.

Use it to stress-test, not just to screen

Run the calculation three times: at today's ADR and costs, at ADR 15% lower, and at interest rates two points higher. If the break-even stays below market occupancy in all three cases, the property has a genuine margin of safety. Terrivio's report shows break-even occupancy next to the market's actual occupancy for every listing, together with a stressed-rate DSCR, so this comparison is made for you before you decide to view.