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.
Metrics
How it's calculated
OER = Operating Expenses ÷ Effective Gross Income
Example
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…