The operating expense ratio for a property with $120,000 EGI and $45,600 in operating expenses is:
Correct Answer
D) 38% of effective gross income
Why this is correct: Operating Expense Ratio = Total Operating Expenses ÷ Effective Gross Income (EGI). Here, $45,600 ÷ $120,000 = 0.38 or 38%. Why the other choices are wrong: "62% of effective gross income" is the inverse (EGI/Expenses) and incorrect. "26.3% of net operating income" uses the wrong denominator (NOI). "45% of potential gross income" uses the wrong income figure (PGI instead of EGI). Exam tip: Operating Expense Ratio always uses Effective Gross Income as the denominator.
Why This Is the Correct Answer
Why this is correct: Operating Expense Ratio = Total Operating Expenses ÷ Effective Gross Income (EGI). Here, $45,600 ÷ $120,000 = 0.38 or 38%. Why the other choices are wrong: "62% of effective gross income" is the inverse (EGI/Expenses) and incorrect. "26.3% of net operating income" uses the wrong denominator (NOI). "45% of potential gross income" uses the wrong income figure (PGI instead of EGI). Exam tip: Operating Expense Ratio always uses Effective Gross Income as the denominator.
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