Operating Expenses refers to the costs associated with the operation, maintenance, and management of a property. These are the expenses a property owner incurs to keep the property running, not including any mortgage payments or capital expenditures.
Some common operating expenses in real estate include:
- Property Taxes: Paid to the local government based on the assessed value of the property.
- Insurance: Covers potential damages to the property.
- Utilities: Such as water, electricity, gas, and sewage if they are the responsibility of the property owner.
- Property Management: Fees paid to a management company if one is hired to oversee the property.
- Repairs and Maintenance: Routine upkeep to ensure the property remains in good condition. This can include things like lawn care, pest control, and minor repairs.
- Homeowners’ Association (HOA) Fees: If the property is part of a community that has an HOA.
- Advertising: Costs associated with marketing the property to potential tenants.
- Legal and Professional Fees: Costs associated with legal issues, like evictions, or hiring professionals such as accountants or consultants.
- Cleaning and Maintenance Supplies: For the upkeep of common areas or preparation for new tenants.
- Administrative Costs: These can include office supplies, postage, phone bills, and other miscellaneous expenses.
It’s essential for real estate investors to accurately estimate and track operating expenses since they directly affect the property’s net operating income (NOI) and overall profitability.