Definition
Operating expense ratio is operating expenses divided by gross rental income (as percentage). Lower ratios indicate efficiency.
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OER of 40% means $0.40 of rent revenue goes to operations. Includes maintenance, management, insurance, taxes, utilities. Does not include debt service or capital expenditure. Lower OER indicates efficiency. Market varies: office 30-40%, apartments 30-50%, retail 40-60%. Tracking OER over time reveals efficiency trends. Improvements reduce OER increasing profit. Comparing OER across properties identifies outliers. Professional management maintains efficient OER. Excessive expenses reduce returns. Analysis informs improvement priorities. Rising OER requires investigation.
Pro Tip
Track OER trends. Rising ratio indicates problems requiring investigation.
Example
38% operating expense ratio indicated efficient property management.