How to Calculate Operating Expense Ratio? Next, calculate the Effective Gross Income, which is the total of all rent and other income earned, less lost rent due to vacancies (vacancy factor). Similarly, loss of income from vacancies needs to be factored into your gross revenue. Please see our rental property calculators overview for examples of operating expenses. Items like depreciation (non-cash), debt payments, and capital improvements are not included in the calculation because they are not costs in direct operations of the property.

The operating expense ratio focuses on the day-to-day cash costs of running a property. You will need to calculate the Operating Expenses of your property. What Information Will I Need to Calculate Operating Expense Ratio? Similarly, calculating OER while isolating specific expenses can help you narrow down the reason for its rise and help you get it back under control. For example, maybe annual rent increases haven’t matched expense increases. If your OER has been rising over time, it could indicate many issues. When property expenses are being well managed OER will either stay the same or decrease over time, which will allow you to welcome more income.Ī lower operating expense ratio means that you’ve minimized expenses relative to revenue. OER compares what it costs to operate a property with the income that it generates to help you ensure you are running your rental – IE your business – efficiently. How is Operating Expense Ratio in Real Estate Used? OER = Operating Expenses / Effective Gross IncomeĮffective gross income includes rental income as well as other revenue such as laundry fees, utility charge-backs, and parking, less the expected vacancy factor. By dividing your operating expenses by your property’s operating income you will determine your OER.

The Operating Expense Ratio measures the cost to operate a property versus the income it generates.

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