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What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures, Updated Edition, 2nd Edition by Frank Gallinelli

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CHAPTER 28Calculation 22: Operating Expense Ratio

What It Means

Operating expense ratio is the ratio of individual operating expenses or of total operating expenses to the gross operating income (GOI).

Recall that the GOI is the revenue after vacancy and credit loss. Think of GOI not as the amount that you ought to collect, but rather the amount that you really do collect. In that context, operating expense ratios tell you how the money you spend to operate the building relates to the money you receive.

This topic was described in great detail in Part I, Chapter 2, so we certainly won’t repeat it all here. You can use a property’s expense ratios to decide if the operation of a particular investment opportunity appears typical, based on your knowledge ...

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