Property Management
What is 'operating expense ratio' (OER) in property management analysis?
AThe ratio of annual profit to total investment
BThe ratio of operating expenses to effective gross income; helps assess management efficiency✓ Correct
CThe ratio of maintenance costs to total operating budget
DThe ratio of vacancy to total units; measures occupancy efficiency
Explanation
The Operating Expense Ratio (OER) is calculated by dividing total operating expenses by effective gross income. A lower OER indicates more efficient management and higher profitability. Typical OERs for apartment buildings range from 35-50%. An unusually low OER may suggest deferred maintenance, while an unusually high OER may indicate inefficient management or high expenses.
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