What expenses should I include when evaluating rental yield?

All recurring costs of operating the property: property taxes, insurance, repairs and maintenance, management, owner-paid utilities, leasing and turnover, and association dues, plus a realistic vacancy allowance on the income side. Then, separately, deduct reserves for replacements and the owning entity's fees to reach what investors receive.

How is the operating expense ratio calculated?

Operating expenses divided by effective gross income. In a single-family rental with $23,100 of effective gross income and $8,848 of operating expenses, the ratio is 38.3%, leaving a 61.7% NOI margin.

Why are farmland expense ratios low?

Because farm tenants usually bear the operating costs. Farmland Partners says its tenants are responsible for substantially all operating expenses, including maintenance, water usage and insurance. In 2025 its property operating expenses were $5.6 million against $35.9 million of rental income, about 16%; its corporate general and administrative expense was a further $11.7 million.

Why can a reported expense ratio exceed 100%?

Because reported operating expenses may include depreciation, start-up costs or financing-related items, or because income is weak. AltStreet's Arrived review cites STR 2's restated fiscal 2025 results: revenue of $968,249 against operating expenses of $1,441,784. Check what the reported line includes before comparing ratios.

Operating Expense Ratio

Real Assets & Fractional Structures

Definition

The operating expense ratio (OER) is a property's recurring operating expenses divided by its effective gross income for the same period. Included are the costs of running the property: property taxes, insurance, repairs and maintenance, property management, owner-paid utilities, leasing and turnover costs, landscaping, homeowners' association dues and similar items. Excluded are debt service, depreciation, capital expenditures and replacement reserves (unless a definition says otherwise), and income taxes. One minus the ratio is the NOI margin. The ratio depends heavily on who pays what under the lease: in the worked examples on this page, a single-family rental where the owner pays taxes, insurance and repairs runs at 38.3%, while a farm leased to a tenant who bears most operating costs runs at 10.6%. Costs charged at the level of the owning entity, such as a fund's or platform's asset management and administration fees, are outside the property's OER but still reduce investor returns.

Why it matters

Expenses are where rental yields most often disappear between the pitch and the distribution. Gross rental yields are easy to quote; the costs that come out of them, taxes that can reset after a sale, insurance, repairs on older housing stock, and management fees that AltStreet found ranging from 5% to 30% of collected rent on one platform, are specific to each property and easy to underestimate. Comparing a property's expense ratio with similar properties shows whether its NOI is plausible, and separating property-level from entity-level costs shows how much of the remaining income reaches investors. AltStreet's reviews treat an expense ratio well below comparable properties as a reason to ask what has been left out.

Common misconceptions

•Low expenses are not always efficiency. They can mean deferred maintenance or costs not yet billed.
•Expense ratios are not comparable across lease types. Who pays taxes, insurance and repairs changes the ratio.
•Platform and fund fees are not in the property's ratio, but they reduce investor returns all the same.
•Reported operating expenses can include depreciation. Read the line before computing a ratio.
•Property taxes do not stay fixed. A sale can trigger reassessment.

Technical details

Worked ratios

Single-family rental: operating expenses $8,848 / effective gross income $23,100 = 38.3%; NOI margin 61.7%.

Cash-rented farm: landlord costs $5,080 / rent $48,000 = 10.6%; NOI margin 89.4%.

Farmland Partners, 2025: property operating expenses $5.6 million / rental income $35.9 million, about 16%; corporate general and administrative expense of $11.7 million sits outside that ratio.

Included and excluded

Included: property taxes, insurance, repairs and maintenance, management, owner-paid utilities, leasing and turnover, association dues, landscaping and snow removal.

Excluded: mortgage interest and principal, depreciation and amortization, capital improvements, reserves (unless defined in), income taxes.

Outside the property: asset management, fund administration, audit, legal and platform fees charged to the owning entity.

Disclosures in AltStreet's reviews

Lofty: property managers charge 5% to 30% of collected rent.

Arrived: taxes, insurance, maintenance and vacancy are the larger deductions for single-family series, with platform fees of about 1% of value a year on top.

Ark7 Properties LLC, fiscal 2025: revenue $799,804; operating expenses including depreciation $383,770; interest expense $298,404.

AcreTrader: property taxes, insurance and maintenance are billed to each farm entity separately, and total annual costs including management fees run 2% to 4%.

Streitwise: $317,337 of property management fees in fiscal 2025, borne by the company as an operating expense.

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

What expenses should I include when evaluating rental yield?: All recurring costs of operating the property: property taxes, insurance, repairs and maintenance, management, owner-paid utilities, leasing and turnover, and association dues, plus a realistic vacancy allowance on the income side. Then, separately, deduct reserves for replacements and the owning entity's fees to reach what investors receive.
How is the operating expense ratio calculated?: Operating expenses divided by effective gross income. In a single-family rental with $23,100 of effective gross income and $8,848 of operating expenses, the ratio is 38.3%, leaving a 61.7% NOI margin.
Why are farmland expense ratios low?: Because farm tenants usually bear the operating costs. Farmland Partners says its tenants are responsible for substantially all operating expenses, including maintenance, water usage and insurance. In 2025 its property operating expenses were $5.6 million against $35.9 million of rental income, about 16%; its corporate general and administrative expense was a further $11.7 million.
Why can a reported expense ratio exceed 100%?: Because reported operating expenses may include depreciation, start-up costs or financing-related items, or because income is weak. AltStreet's Arrived review cites STR 2's restated fiscal 2025 results: revenue of $968,249 against operating expenses of $1,441,784. Check what the reported line includes before comparing ratios.