What is the Operating Expense Ratio?

What is the Operating Expense Ratio (OER)?

The Operating Expense Ratio (OER) measures the efficiency of a property’s operational costs relative to its revenue. It is calculated as:

OER = (Operating Expenses ÷ Gross Revenue) × 100

A lower OER indicates better cost control, while a higher OER suggests high expenses relative to income.

Key Points:

• Benchmark for Efficiency: Used to assess property profitability.
• Includes Costs: Maintenance, utilities, property management, taxes, and insurance.
• Excludes Debt Payments: OER does not account for mortgage payments.
• Ideal Range: Varies by property type; lower ratios often indicate better efficiency.

Understanding OER helps investors and property owners optimize expenses to maximize net income.