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Operating Expenses
The ongoing costs of running a rental property, excluding mortgage payments and capital improvements.
Definition
Operating expenses include all recurring costs to maintain and operate a property: property taxes, insurance, property management fees, repairs, utilities (if landlord-paid), landscaping, pest control, and administrative costs. They do not include debt service, capital expenditures, or income taxes. A common rule of thumb is that operating expenses consume 35-50% of gross rental income, though this varies widely by property type and age. Accurately tracking expenses is essential for calculating NOI and evaluating property performance. Underestimating operating expenses is one of the most common mistakes new investors make.
Related Terms
NOI (Net Operating Income)
A property's total income minus operating expenses, before debt service and taxes.
Capital Expenditures (CapEx)
Major, infrequent expenses for replacing or upgrading property components like roofs, HVAC, and appliances.
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
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