Knowledge Base
Operating Expense Ratio (OER)
The operating expense ratio (OER) is a property's total operating expenses divided by its effective gross income, showing what share of each collected dollar operations consume.
How the operating expense ratio is calculated
Divide total operating expenses by effective gross income. A property collecting $2.5 million that spends $1 million on operations runs a 40 percent OER. The expense side includes payroll, repairs and maintenance, utilities, insurance, taxes, and administrative costs — not debt service or capital projects. The income side is what the property actually collects, not gross potential rent. Using potential rent understates the ratio and hides operating problems behind vacancy.
What counts as a good ratio in multifamily
The working consensus is 35 to 50 percent of effective gross income, a range published by data providers such as HelloData. Where a property should sit inside that range depends on age, market, and tax burden — newer assets in low-tax states run lower, older assets in high-tax markets run higher. A ratio below 35 percent on a stabilized market-rate property is usually a reporting problem, not an efficiency triumph: some expense is missing or deferred.
How operators bring the ratio down
The denominator — income — is slow to move. The numerator moves faster. Start with the controllable lines: repairs and maintenance, supplies, contract services. The National Apartment Association put total operating expenses at $8,657 per unit for 2024, and category-level cuts risk deferred maintenance. The safer lever is paying the right price for what the property already buys: reducing operating expenses without cutting scope means verifying prices line by line, which is the work The Benchmark does each quarter.
Related terms
Start with one property and one quarter
Send us a quarter of invoices and we will show you what it should have cost. If there is nothing there, we will tell you that too.
