January 22, 2025•2 min read
Operating Expense Ratio (OER): Are You Overspending on Your Rental?
RentalIntel Team
Real Estate Investment Experts
Cash flow is king, but expenses can kill your profits.
That’s why tracking Operating Expense Ratio (OER) is critical.
The Formula
Where:
- Operating Expenses = Property management, maintenance, taxes, insurance (NOT mortgage)
- Gross Rental Income = Total rent collected before expenses
Real-Life Example
Rental Property Data
| Category | Amount |
|---|---|
| Annual Rental Income | $24,000 |
| Operating Expenses | -$6,000 |
OER Calculation
What Does a 25% OER Mean?
- Lower OER = More efficient rental operation
- Higher OER = More expenses eating into profits
- Most healthy rentals have OER between 30-50%.
When OER Matters (and When It Doesn’t)
✅ Essential for tracking rental expenses
✅ Great for optimizing cash flow
❌ Doesn’t include financing costs
❌ Can vary by market (e.g., high-tax states have higher OERs)
Pro Tips
- Keep OER under 40% to maximize cash flow.
- If OER is too high, look for cost-cutting opportunities.
- Compare your OER to similar properties in your market.
The Bottom Line
A lower Operating Expense Ratio = More profit in your pocket.
If your OER is creeping up, it’s time to cut costs or raise rent.
What’s a good OER in your market? Share your experience!
