Operating Expense Ratio Calculator
OER = operating expenses ÷ gross income. The single best snapshot of how efficient your property is.
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Sam's Take
The 50% rule is a quick gut-check, but real OER varies way more than that — based on age of building, asset class, market, and how aggressively the prior owner was deferring maintenance. My stabilized New England multifamily averages 38-42%. New construction can be under 30%. A 1920s triple-decker that's been neglected can hit 60%+ before you bring it back into shape. If a broker hands you a pro forma showing 25% OER on a 100-year-old building, run the numbers from your own assumptions.
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What operating expense ratio actually tells you
Operating Expense Ratio (OER) is one number: a property's total operating expenses divided by its gross income, expressed as a percentage. So if a building brings in $100K of gross rent and spends $42K on operating expenses, the OER is 42%. The lower the number, the more of every rent dollar drops to net operating income — and ultimately to your pocket.
OER is one of the most useful single metrics for comparing properties to each other. Two buildings with similar gross rents but different OERs can have wildly different net cash flows. The 42% OER building is twice as efficient at converting rent to NOI as a 60% OER building.
What's a "good" OER, by building type
- Under 35%: excellent. But also: be skeptical. Marketing pro formas frequently come in under 35% because expenses get underreported. If the broker's number is 32% and your own estimates put it at 45%, trust your math, not theirs.
- 35-45%: typical for a well-managed stabilized residential multifamily.
- 45-55%: common for older buildings, properties where the landlord pays utilities, or buildings with elevators / amenities that bump operating costs.
- Over 55%: something is off. Usually one of: deferred maintenance has caught up (every system is failing at once), operations are inefficient (overstaffed management, bloated vendor contracts), or the rents are below market by a lot. Worth investigating before you walk away — buildings with high OER and below-market rents can be value-add opportunities.
What OER doesn't include — and why that matters
Two big things are NOT in OER, and forgetting that is a common rookie error:
- Mortgage payments (debt service). OER measures the property as a property — not your specific deal financing. That's a feature, not a bug: it lets you compare two buildings without the noise of who paid cash and who borrowed 80%.
- Capital expenditures. OER doesn't include the new roof, the new boiler, the unit renovation. CapEx hits separately on a longer timeline. Two buildings with identical 40% OERs can have very different CapEx profiles (a 1925 triple-decker vs a 2010 build), and that difference shows up over the hold period.
Bottom line: OER measures property efficiency. Cash-on-cash measures your investment. They're different numbers and they answer different questions.