How is the operating expense ratio (OER) calculated?

The operating expense ratio (OER) is a financial measurement that indicates the proportion of a property's income that is used to pay for operating expenses. It is calculated by taking the total expenses and dividing them by the effective gross income. This ratio provides insight into how well a property is being managed and is useful for evaluating the operational efficiency of real estate investments.

By using effective gross income in the denominator, the OER takes into account not just the gross income but also accounts for any vacancy losses or other adjustments to income that might affect the property’s financial performance. A lower OER indicates that a smaller portion of the income is being consumed by operating expenses, which generally suggests better performance and profitability for the property. Thus, option B accurately reflects the formula and concept behind calculating the operating expense ratio.