Glossary term
Operating Expense Ratio
Operating expense ratio is a property's operating expenses divided by its effective gross income. It shows how much of each income dollar goes to costs.
The formula is operating expenses / effective gross income. If a property collects $1,000,000 and spends $450,000 to run, the ratio is 45 percent.
Operating expenses include payroll, repairs and maintenance, utilities, insurance, property taxes, marketing and management fees. They do not include loan payments or major capital projects.
A rising ratio can mean costs are growing faster than income. Compare it to similar properties, since older buildings or those with more services often run higher.
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