operating expense ratio

Definition

The percentage of gross income consumed by operating expenses, revealing how efficiently a property performs. The financial equivalent of checking your car's MPG, but for buildings.

Example Usage

With an operating expense ratio of 65%, the property was hemorrhaging money on maintenance, making it either a terrible investment or a value-add opportunity, depending on your optimism.

Origin

Commercial real estate analysis metric standardized in investment evaluation

Fun Fact

Experienced investors consider anything above 50% worrisome for residential properties, though commercial properties vary widely by type and age.

Source: Commercial real estate financial analysis terminology

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operating expenses

The recurring costs of keeping a property functional—utilities, maintenance, management, insurance, and property taxes—everything except debt service. It's the monthly financial hemorrhaging that separates rental income from actual profit.

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