Metrics
Operating Expense Ratio
Operating expenses ÷ effective gross income. The inverse of NOI margin.
35–50% is typical for residential rentals. Newer and professionally managed runs lower; older, self-managed with deferred maintenance runs higher.
How it's calculated
OER = Operating Expenses ÷ Effective Gross IncomeExample
A property collecting $60,000 of effective gross income against $24,000 of operating expenses has an OER of 40% — 40 cents of every rent dollar goes to running the property.
Why Operating Expense Ratio matters
OER is the fastest sanity check on someone else's pro forma. A seller claiming a 20% OER on a 1960s duplex is not counting CapEx, management, or realistic vacancy — recompute NOI yourself before believing the cap rate.
Related terms
NOI (Net Operating Income)
Gross annual rent minus all operating expenses, before debt service and income tax.
CapEx (Capital Expenditures)
Reserves for large infrequent repairs — roof, HVAC, water heater. Typically 5–10% of rent set aside …
Maintenance Reserve
A planning reserve for routine repairs; the appropriate amount depends on the property's systems, co…
Management Fee
Property management cost as % of collected rent. Typical PM fees: 8-10%. Set to 0 if you self-manage…
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