Operating Expense Ratio - OER


DEFINITION of 'Operating Expense Ratio - OER'

A measure of what it costs to operate a piece of property compared to the income that the property brings in. The operating expense ratio is calculated by dividing a property's operating expense by its gross operating income. Investors using the ratio can further compare each type of expense, such as utilities, insurance, taxes and maintenance, to the gross operating income, as well as the sum of all expenses to the gross operating income.

BREAKING DOWN 'Operating Expense Ratio - OER'

The operating expense ratio is a useful tool when comparing the expenses of similar properties. If a particular piece of property has a much higher OER for a particular expense, such as maintenance, an investor should see that as a red flag and should look deeper into why maintenance expenses are so much higher than comparable properties.
For example, consider a piece of property with a gross operating income of $50,000. Total operating expenses are $6,200, which include utilities ($700), insurance ($1,500) and taxes ($4,000). The overall OER would be 12.4% ($6,200/$50,000) and the broken down OER for each of the expenses would be 1.4% for utilities ($700/$50,000), 3% for insurance ($1,500/$50,000), and 8% for taxes ($4,000/$50,000). The investor can then compare these percentages to other similar properties.

  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Effective Gross Income - EGI

    The amount of income produced by a piece of property, plus miscellaneous ...
  3. Gross Income

    1. An individual's total personal income before taking taxes ...
  4. Operating Expense

    A category of expenditure that a business incurs as a result ...
  5. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  6. Rule Of 72

    A shortcut to estimate the number of years required to double ...
Related Articles
  1. Home & Auto

    5 Mistakes That Make House Flipping A Flop

    If you're just looking to get rich quick, you could end up in the poorhouse.
  2. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  3. Personal Finance

    A Primer On The Railroad Sector

    The railroad industry might seem antiquated, but it remains an important service that reaches all corners of the country.
  4. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  5. Taxes

    Avoid Capital Gains Tax On Your Home Sale

    If you have property to sell and want to avoid capital gains tax, a Section 1031 exchange may be the answer.
  6. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  7. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  8. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  9. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  10. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  1. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  2. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  3. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  4. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  5. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  6. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center