Operating expense ratio (OER) shows what share of a property's income is consumed by the cost of running it. You divide annual operating expenses, meaning management, insurance, property taxes, maintenance, utilities you cover, and a vacancy allowance, by gross operating income. A building with $18,000 of operating expenses on $45,000 of income has a 40% OER.
Because it excludes the mortgage, OER isolates operating efficiency rather than financing. There is no single correct number, since it varies with a property's age, type, and who pays utilities, but a rising OER over time is a warning that costs are outrunning rent. It is the mirror image of the share that flows through to NOI: the lower your OER, the more of each rent dollar reaches the bottom line.
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Editorial method reviewed July 28, 2026. Aptoria reviews scope, source fit, examples, limitations, links, and publication gates. This record does not claim attorney, CPA, lender, appraiser, or other independent professional sign-off.
Related terms
Investing metrics
Net operating income (NOI)
Net operating income is effective property income minus normalized property operating expenses, before debt service and owner-level income taxes.
Investing metrics
Break-even ratio
The share of a property's potential income you must collect just to cover its operating expenses and debt payments, with nothing left over.
Investing metrics
Capitalization rate (cap rate)
Capitalization rate is annual net operating income divided by a stated property price or value, expressed as a percentage.
Investing metrics
Cash flow
The cash left over each period after all income is collected and all expenses — including the mortgage — are paid.
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