A rent that covers the mortgage can still lose you money every month. The figure that tells you whether a rental pays for itself is its break-even rent, and it always sits above the loan payment.
What is break-even rent?
Break-even rent is the monthly rent at which a rental’s cash flow is exactly zero. Every bill gets paid and nothing is left over.
Below that rent, you pay into the house every month. Above it, the difference is your cushion for the months that go worse than planned. How much a rental should cash flow covers how big that cushion should be.
Break-even rent comes from the house’s costs alone. What a tenant will pay is a separate question.
Why is break-even rent higher than the mortgage?
Break-even rent is higher than the mortgage because the rent pays for more than the loan: property taxes and insurance every month, plus a share of every check for empty months, repairs and management.
Take a $250,000 single-family house bought with 20% down on a 30-year loan at 7%, so the mortgage payment is $1,331 a month. Property taxes are $3,000 a year and insurance is $1,400. The example sets aside 5% of the rent for empty months, 5% for repairs, 5% for big repairs like a roof or furnace, and 8% for a property manager. It assumes the house rents for $2,750, the same house the cash flow walkthrough takes line by line.
| At $2,750 rent | At break-even | |
|---|---|---|
| Rent | $2,750 | $2,204 |
| Empty months (5% of rent) | −$137 | −$110 |
| Property taxes | −$250 | −$250 |
| Insurance | −$117 | −$117 |
| Repairs and big repairs (10% of rent) | −$275 | −$220 |
| Property management (8% of rent) | −$220 | −$176 |
| Mortgage, 30 years at 7% | −$1,331 | −$1,331 |
| Cash flow each month | +$420 | $0 |
These are example figures, not a forecast for any market.
The rent can fall $546 before this house stops paying for itself. Watch which lines move on the way down. The mortgage, taxes and insurance don’t budge. The other three are shares of the rent, so they shrink as it falls, but they’re still there at $2,204.
That’s the $873 between the mortgage and the break-even rent: $367 of taxes and insurance, and the rest set aside for empty months, repairs and management.
How do you calculate break-even rent?
To calculate break-even rent, divide the fixed monthly costs by the share of each rent dollar that’s left after vacancy, repairs and management:
Break-even rent = fixed monthly costs ÷ (1 − the share of rent that goes to vacancy, repairs and management)
Fixed costs are the mortgage, property taxes, insurance, and any HOA dues or utilities you pay. On this house they come to $1,697.27 a month ($1,330.60 + $250 + $116.67). The shares add up to 23% (5 + 5 + 5 + 8), which leaves 77 cents of every rent dollar for the fixed costs. So $1,697.27 ÷ 0.77 = $2,204.25.
That 77 cents is why the break-even climbs faster than the bills do. Every extra $100 a month of fixed cost adds about $130 to it, so an insurance quote $1,200 a year higher would push this house to $2,334.
The formula also shows what leaving a cost out does. Drop the 8% for management because you’ll run the house yourself, and the break-even falls to $1,997. That rent only works as long as your own time costs nothing.
The rental calculator runs the same search by trial on four inputs: the rent, the vacancy rate, the interest rate and the purchase price. Its “Biggest risk” line, under the answer, names the one closest to sinking the deal and where it does. On the calculator’s sample, which is this house, that’s the interest rate: “It stops working if the interest rate goes above 9.97%.” When the rent is closest, the line reads “It stops working if the rent falls below” and gives the break-even rent. A deal that already loses money gets “What would fix it” instead.
What is the break-even ratio?
The break-even ratio is the same test written as a percentage: running costs plus the mortgage payment, divided by the full rent. It says how much of each rent dollar is spoken for before a single month sits empty.
At $2,750, this house’s running costs are $862 a month, the calculator’s “Total operating expenses” line (taxes, insurance, repairs, big repairs and management). Add the $1,331 mortgage and divide by $2,750, and the ratio is 79.7%. A ratio over 100% means the rent can’t cover the bills even with a tenant in every month.
Turn it around and you get the break-even vacancy. This house can lose 20.3% of its rent, about 74 days a year with no tenant, before the cash flow hits zero. The example plans for 5%, about 18 days.
Is your break-even rent realistic?
One public yardstick for whether a break-even rent is realistic is HUD’s Fair Market Rent, or FMR. HUD sets one every year for each metro area and each county outside one, by number of bedrooms, and it’s the basis for how much a housing voucher can pay. Under the regulation that defines it, 24 CFR 888.113, an FMR estimates rent plus utilities (phone aside), generally at the 40th percentile: 40% of standard-quality rentals occupied by recent movers go for less.
As of September 2026, HUD’s figures for fiscal year 2027 are out and set to take effect on October 1, according to its Federal Register notice. You can look up your area on HUD User. Before you compare:
- Add the tenant’s utilities. An FMR counts them. A rent your tenant pays on top of their own utility bills doesn’t.
- Expect a bump on bigger homes. The same notice says HUD adds 8.7% to three-bedroom FMRs and 7.7% to four-bedroom ones on purpose, to help large families find a place.
The further your break-even sits above the FMR, the more of the area’s rents the house has to beat. It’s a check on the floor, not a rent for your house.
How do you find the break-even rent for your own house?
Run your own numbers through the rental calculator, then check the result from two sides.
- Enter the house in the rental calculator with every cost, including Property management, Maintenance and the CapEx reserve, even if you plan to do the work yourself.
- Lower the Monthly rent until the cash flow at the top of the answer reaches zero. That rent is your break-even. The formula gets you the same figure by hand.
- Set it against the rent you expect. The gap is your cushion.
- Hold it up to the FMR for the area and bedroom count, with utilities added.
Then change the cost you’re least sure of, such as the insurance quote or the tax bill, and see how far the break-even moves. If one quote can push it past the rent you expect, that’s the number to pin down before you make an offer.