Real Estate Math
A property has an effective gross income of $96,000 and total operating expenses of $43,200. What is the operating expense ratio?
A45%✓ Correct
B55%
C38%
D63%
Explanation
Operating expense ratio = Operating Expenses ÷ Effective Gross Income = $43,200 ÷ $96,000 = 0.45 = 45%.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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