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Operating Expense Ratio (OER):
The operating expense ratio is a way to measure how much of the money a property makes goes toward paying for the costs of running the property. It's calculated by dividing the operating expenses by the total income the property generates. A lower ratio means the property is more profitable, while a higher ratio means more money is spent on operating expenses.
A landlord earns $10,000 per month in rent from an apartment building and has $4,000 in monthly operating expenses. To calculate the operating expense ratio, you would divide the expenses ($4,000) by the total income ($10,000). The ratio would be 0.4, or 40%, meaning 40% of the income goes toward operating expenses.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
In the world of properties grand,
An expense ratio helps understand,
How much of the money made,
Is spent on costs, not delayed.
To find this ratio, we divide,
Expenses by income, side by side,
The result, a percentage we'll see,
Reveals how costly it can be.
For landlords seeking profits high,
A lower ratio, they will try,
But if the ratio's high, beware,
More income's spent on costs and care.