Operating Expense Ratio - OER

The operating expense ratio calculates the ratio between expenses paid to operate a venture and the revenues it generates. It's a way to see how expensive a particular asset is to run, compared to how much money it brings in. OER often comes up in real estate situations, letting people know how profitable an income property can be.

You buy a small apartment building that you plan to run as a retirement home/drug rehab facility for former child actors. It has ten apartments, each generating $4,000 in revenue per month...so $40,000 total a month. Meanwhile, utilities, upkeep, gardening, insurance, counseling sessions, acting lessons, etc. all come to $15,000 a month.

To determine the OER, simply divide the operating expenses ($15,000) by the revenue ($40,000). The figure for your retirement community/rehab facility comes to 37.5%; that number equates to your operating expense ratio.