Definition
Operating expenses are recurring costs to operate and maintain the property. Understanding and controlling them directly improves profitability.
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Operating expenses do not include principal and interest payments (debt service) or capital improvements. Typical operating expenses run 25-35% of gross rental income, though this varies significantly by property type and location. Understanding and controlling operating expenses directly improves property profitability and NOI.
Pro Tip
Track actual expenses monthly to identify trends and cost-saving opportunities.
Example
Operating expenses might include $500 property management, $300 maintenance, $200 insurance, $400 property taxes, and $100 utilities