Operating expenses
The regular costs of running a rental property: taxes, insurance, property management, repairs, utilities the owner pays, and reserves. Doesn't include the mortgage payment.
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Free to set up. No credit card.Part 1 of 4
Why a seller cares
Operating expenses are what it costs to run the rental, before the mortgage, and buyers compare your figure to their own rule of thumb. A seller's understated expenses are the first thing a buyer's underwriting corrects.
Part 2 of 4
A simple example
Your duplex's expenses last year: $3,400 taxes, $1,600 insurance, $2,100 repairs, $1,300 management, $1,250 reserves. About $9,650.
| What counts | What does not |
|---|---|
| Taxes, insurance, repairs, management, reserves | The mortgage |
| Utilities the owner pays | Depreciation |
| Vacancy, sometimes shown separately | Capital improvements, which are capitalized |
Operating expenses are the cost of the building, not the cost of the loan.
Part 3 of 4
What people get wrong
That a low expense figure makes the building look better. Buyers underwrite their own, and a seller's number that is too low reads as a seller who does not know.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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