What is Operating Ratio in real estate?
The operating ratio in real estate helps property managers and investors evaluate how efficiently they manage a property. People mainly use it to assess how much income from a property goes towards its operating costs.
You calculate it by dividing total operating expenses by the total income (net sales) of the property.
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How to calculate the operating ratio:
Operating Expenses: This includes all costs needed to keep and manage the property. This covers repairs, maintenance, utilities, management fees, and insurance.
Operating Income: This is the total money made from the property. It includes rental income and other sources, like parking fees.
Operating Ratio Formula:
What to include in Operating Expenses:
- Maintenance Costs: Routine property upkeep and repairs.
- Repairs and Maintenance: Unexpected repairs and costs to keep the property operational.
- COGS (Cost of Goods Sold): If applicable, depending on the type of property and services offered.
A good operating ratio usually depends on the type of property. In general, a lower ratio is better. It shows that people keep more money as income instead of spending it on costs.
This ratio is useful. You can calculate it with an operating ratio calculator. This helps you quickly analyze property performance.
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