Break-even ratio measures how much of a property's potential income you must collect just to cover all its bills. The common form adds operating expenses and annual debt service, then divides by gross potential income. A property needing $40,000 to cover expenses and loan payments against $50,000 of potential rent has an 80% break-even ratio, meaning you can lose up to 20% to vacancy or non-payment before it stops paying for itself.
Lenders watch this ratio because it shows how much cushion stands between a property and a monthly shortfall. A break-even ratio near 100% is fragile, since one vacancy tips it into the red. It is closely related to debt service coverage: both ask whether the income reliably covers the loan, just framed from opposite directions.