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Operating Expense Ratio

The Operating Expense Ratio (OER) is the ratio between the total operating expenses and the effective gross income.

Operating expenses are costs associated with the operation and maintenance of income-producing properties. They include such items as property taxes, property management fees, insurance, wages, utilities, repairs and maintenance, supplies, advertising, attorney fees, accounting fees, trash removal, pest control, etc.

The following are not operating expenses: loan payments, personal property and capital improvements.

The effective gross income for a property is the actual yearly income from all sources. It is equal to the yearly gross rents possible plus other income such as laundry receipts, vending machines, parking fees, etc., less the yearly vacancy amount.

The operating expense ratio shows the percentage of a property's income that is being used to pay maintenance and operational expenses.

Operating Expense Ratio = Operating Expenses/Effective Gross Income

The operating expense ratio is an indicator of how efficiently a property is being managed.

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