Faro Labs / Tools / Operating expense ratio calculator
Operating expense ratio calculator
What share of the rent actually gets eaten by running the property, before the mortgage even shows up? OER is the property's operating margin: how much income survives to pay debt service and go in your pocket.
35–50%. Typical range for a well-run single-family or small multifamily rental.
OER and cap rate come from the same numbers, viewed differently. See the cap rate calculator for the yield version.
How OER is calculated
effective gross income = gross rent − vacancy
OER is cap rate's mirror image: instead of asking what the property yields, it asks what fraction of income gets consumed just keeping the lights on. A property with a 40% OER keeps 60 cents of every rent dollar as NOI, before the mortgage takes its share. Comparing OER across similar properties is often a faster smell test than comparing raw expense dollars, because it normalizes for size.
Reading the number correctly
Context changes what "good" means. An all-bills-paid rental, where the owner covers utilities, runs a structurally higher OER than a bare rental where the tenant pays everything, and that's by design, not a red flag. What should raise an eyebrow is an OER that looks unusually low on a listing: it often means vacancy, reserves, or management were quietly left out of the seller's numbers rather than genuinely absent from the property.
OER questions
What is operating expense ratio (OER)?
Total operating expenses divided by effective gross income, expressed as a percentage. It shows what share of collected income gets consumed by running the property before debt service: the inverse of the property's operating margin, and a quick way to compare efficiency across properties of different sizes.
What is a good operating expense ratio?
Roughly 35 to 50 percent is typical for a single-family or small multifamily rental, depending on age, whether utilities are owner-paid, and management structure. Higher isn't automatically bad, an all-bills-paid property runs a higher OER by design, but it should match what you actually budgeted for the property.
Does a low OER always mean a better deal?
Not necessarily. An unusually low OER on a listing often means real costs, vacancy, reserves, management, were left out rather than genuinely low. Comparing a listing's claimed OER to your own bottom-up expense estimate matters far more than the headline number alone.
Every calculator
Real expenses, not a rule of thumb.
Faro builds operating expenses from state-aware defaults you can edit line by line: paste a listing to see the real ratio.
Estimates for analysis and educational use only: not financial, investment, tax, or legal advice. Verify every number independently before making a purchase decision.