The operating expense ratio for a property with EGI of $500,000 and operating expenses of $215,000 is:
Correct Answer
C) 43%
Why this is correct: Operating Expense Ratio = (Operating Expenses ÷ Effective Gross Income). Calculation: $215,000 ÷ $500,000 = 0.43 or 43%. Why the other choices are wrong: '23%, comparing expenses to the property's value' incorrectly uses property value instead of EGI. '57%, measured against net operating income' incorrectly uses NOI as the denominator. '2.3 times, expressed as a coverage multiple' inverts the ratio (EGI/Expenses = 2.33). Exam tip: Operating Expense Ratio = Expenses / EGI. It's a key benchmark for comparing property efficiency.
Why This Is the Correct Answer
Why this is correct: Operating Expense Ratio = (Operating Expenses ÷ Effective Gross Income). Calculation: $215,000 ÷ $500,000 = 0.43 or 43%. Why the other choices are wrong: '23%, comparing expenses to the property's value' incorrectly uses property value instead of EGI. '57%, measured against net operating income' incorrectly uses NOI as the denominator. '2.3 times, expressed as a coverage multiple' inverts the ratio (EGI/Expenses = 2.33). Exam tip: Operating Expense Ratio = Expenses / EGI. It's a key benchmark for comparing property efficiency.
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Previous Question
A property has a potential gross income of $425,000. Historical records show a 5% physical vacancy rate and an additional 2% loss from non-payment and skips. Operating expenses are $185,000 annually. What is the net operating income?
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The operating expense ratio for a property with $120,000 EGI and $45,600 in operating expenses is: