Definition
Expense ratio is operating expenses divided by gross rental income. Lower ratios indicate more profit. Properties with expense ratios over 50% are marginal investments; below 40% are typically stronger.
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Lower expense ratios indicate more profitable properties. Includes maintenance, taxes, insurance, utilities, management.
Pro Tip
Target investment properties with expense ratios under 50%. Higher ratios mean more of your rent goes to expenses rather than profit.
Example
Property with $100K income and $40K expenses has 40% expense ratio.