Operating Margin

Operating margin is operating income divided by revenue. For a rental, the equivalent is NOI divided by effective gross income, sometimes called the NOI margin. It is the complement of the expense ratio and shows how much of each collected dollar survives to feed the cap rate.

The example property keeps $28,892 of NOI from $45,600 of effective gross income, a 63% margin, with expenses taking the other 37%. Newer buildings with efficient systems may run higher margins; older buildings and those where the owner pays utilities often run lower.

Margin is a quick check on a seller's numbers. If a listing shows a margin far above similar properties, one or more expense lines is probably missing. Cap rate equals the margin times effective gross income divided by price, so an inflated margin inflates the cap rate by the same proportion.