InvestingAll terms starting with O
Operating expenses
Also called: opex
The recurring costs of running a property: taxes, insurance, management, maintenance, and owner-paid utilities.
Operating expenses are the ongoing costs of keeping a property rented. They exclude the mortgage, which is debt service, and exclude capital expenditures, which are large infrequent replacements.
Understating them is the most common flaw in a rental projection. Management and maintenance are real costs even when you do the work yourself. You are paying with time.
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Related terms
- NOI (Net Operating Income)Income after operating expenses but before debt service, taxes on income, and capital expenditures.
- CapEx (Capital expenditures)Large, infrequent replacements (roof, HVAC, water heater), budgeted monthly even though they are paid rarely.
- Cash flowWhat remains each month after rent has covered operating expenses and debt service.
- 50% ruleA rough assumption that operating expenses will consume about half of gross rent, excluding the mortgage.
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