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.
Get the steps of a home sale by email, in order, one short email at a time.
Eight short emails, free. Unsubscribe any time. What's in them
Where this comes up: getting ready
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
In your Room, this word explains itself where it appears.
Your Room defines operating expenses in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
Organize my saleFree to set up. Pay once when you list: $89 or $189. 7-day refund.