OpEx
Operating expenses
Operating expenses are the recurring costs of running the property: taxes, insurance, management, maintenance, utilities the owner pays, HOA dues, and a reserve for capital replacement. They exclude mortgage principal and interest, depreciation, and income tax. On a typical small residential rental they land between 35% and 50% of gross rent.
OpEx = fixed costs + management + maintenance reserve + CapEx reserve
Worked example
$3,420 taxes + $1,650 insurance + $720 utilities + $300 other + $2,485 management + $1,590 maintenance + $1,590 CapEx = $11,755.
Every example in this glossary uses the same deal: a $265,000 duplex renting for $2,650 a month, bought with 25% down at 6.75% over 30 years, producing $19,310 of net operating income.
The mistake to avoid
Where this is calculated
The 50 percent rule real estate computes this from your own numbers and shows the arithmetic expanded. Half of gross rent goes to operating expenses. Tested against your own itemised budget, line by line.
Related terms
- Net operating incomeNet operating income is what a property earns after vacancy and operating expenses but before any mortgage payment, depreciation or income tax.
- Effective gross incomeEffective gross income is gross potential income minus vacancy and credit loss.
- Vacancy rateVacancy rate is the share of gross potential income lost to empty units and uncollected rent.
Back to the full glossary — 20 terms with formulas and worked examples.