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Operating Expense Ratio (OER)

Operating expenses as a percentage of gross income — a quick measure of property efficiency.

OER shows how much of a property's gross income is consumed by operating expenses (excluding mortgage payments).

OER = Total Operating Expenses ÷ Gross Operating Income × 100

A lower OER means more income flows through to NOI. Typical OERs:

  • Single-family: 35–45%
  • Small multifamily (2–4 units): 40–50%
  • Large multifamily (5+ units): 45–55%

The 50% Rule uses OER as a quick heuristic — assume 50% of gross rents go to expenses before debt service.

Related Terms

NOI

Net Operating Income — a property's income after operating expenses, before mortgage.

EGI

Effective Gross Income — gross rental income adjusted for vacancy and other income.

50% Rule

A quick estimating heuristic: assume 50% of gross rents go to operating expenses before mortgage payments.