Question

The cash flows below contain the year 1 cash flows for a potential real estate investment. What is the property's operating expense ratio? Year 1 Number of Units 75 Average Rent $800 Potential Gross Income $720,000 Vacancy and Collection Losses ($72,000) Effective Gross Income $648,000 Operating Expenses ($243,389) Capital Expenditures ($19,440) Net Operating Income $385,171 Annual Debt Service ($323,301) Before-Tax Cash Flow $61,870

Answer 1

Answer:

37.56%

Explanation:

Data provided

Operating expenses = $243,389

Effective gross income = $648,000

The computation of property's operating expense ratio is shown below:-

Operating expenses ratio = Operating expenses ÷ Effective gross income

= $243,389 ÷ $648,000

= 0.3756

= 37.56%

Therefore for computing the operating expenses ratio we simply divide operating expenses by effective gross income.