CandleFocus Glossary Editor
Operating Expense Ratio (OER) is an important metric used in real estate to evaluate the performance of a property. It measures the cost of operating a property compared to the income generated from it, and so it can be used to gauge the overall efficiency and profitability of a property.
The OER is calculated by dividing the total operating expenses (minus depreciation) by the operating income. This calculation gives a percentage that reveals how efficiently a property’s expenses are being managed relative to the amount of income it generates.
For example, if the total operating expenses were $100,000 and the operating income was $250,000, then the OER would be 40%, meaning that for every $1 of income generated, $0.40 is spent on operating expenses. Generally, it is more desirable for investors to have a lower OER since it indicates that expenses are being minimized and the property is generating a better return on income.
In order to measure the OER of a property, investors need to consider a variety of factors, such as the maintenance, repairs, property taxes, insurance, utilities, and the presence or absence of a tenant. Investing in a property with a lower OER than similar investments in the same area may be an indication that the property is either under-managed, or is a better investment in general.
It is important to note that while OER is a good indication of a property’s performance, it is not always a reliable indicator as it can be affected by external factors and market conditions. That said, the OER is a valuable metric to consider when evaluating a potential real estate investment because it can provide insight into the efficiency and profitability of the property.
The OER is calculated by dividing the total operating expenses (minus depreciation) by the operating income. This calculation gives a percentage that reveals how efficiently a property’s expenses are being managed relative to the amount of income it generates.
For example, if the total operating expenses were $100,000 and the operating income was $250,000, then the OER would be 40%, meaning that for every $1 of income generated, $0.40 is spent on operating expenses. Generally, it is more desirable for investors to have a lower OER since it indicates that expenses are being minimized and the property is generating a better return on income.
In order to measure the OER of a property, investors need to consider a variety of factors, such as the maintenance, repairs, property taxes, insurance, utilities, and the presence or absence of a tenant. Investing in a property with a lower OER than similar investments in the same area may be an indication that the property is either under-managed, or is a better investment in general.
It is important to note that while OER is a good indication of a property’s performance, it is not always a reliable indicator as it can be affected by external factors and market conditions. That said, the OER is a valuable metric to consider when evaluating a potential real estate investment because it can provide insight into the efficiency and profitability of the property.