Operating Expenses
Learn How to Calculate your Operating Expenses for Your Rental Properties.
What are Operating Expenses?
Operating expenses include all expenditures required to operate the property including real estate and personal property taxes, property insurance, management fees, repairs and maintenance, utilities, and other miscellaneous expenses (accounting, legal, etc.). Here's a full list of potential rental operating expenses:
- Property Taxes (check local tax assessor website for tax amount)
- Property Insurance (typically 1% of property value)
- Utilities (Electrical, Water, Gas) (is tenant paying utility bills?)
- Garbage Pickup (is garbage provided by city?)
- Lawn and Groundskeeping (is tenant responsible?)
- Homeowner's Association Dues
- Auto and Travel (cost to travel to rental property)
- Advertising (cost to advertise property)
- Accounting and Legal Expenses (cost for annual accounting/legal expenses)
- Property Management (generally 8 to 10% of gross rents)
- Repairs & Maintenance (5 to 10% of rent set aside to fund small repairs & maintenance issues)
- CapEx (5 to 10% of rent set aside to fund future capital improvements & major repairs)
How to Calculate Operating Expenses
Operating Expenses are calculated in various ways depending on the expense. Operating Expenses can be calculated:
Although Operating Expenses can be calculated differently, ultimately your goal is to calculate the monthly and annual operating expense cost for operating the property which will be deducted from your Gross Operating Income & used to calculate your Net Operating Income for the property.
- per month - Insurance, Utilities and Maintenance are typically paid on a monthly basis
- per year - Property taxes and insurance are typically paid on an annual basis
- % of Gross Scheduled Income or % of Gross Operating Income - Property Management, Repairs & Cap Ex are typically calculated based upon a % gross rents
Although Operating Expenses can be calculated differently, ultimately your goal is to calculate the monthly and annual operating expense cost for operating the property which will be deducted from your Gross Operating Income & used to calculate your Net Operating Income for the property.
Operating Expense Example
In the example below, our rental property has the following operating expenses:
The example below shows how we calculated the Operating Expenses using our Free Rental Property Spreadsheet.
- Property Taxes - $2,250 per year
- Property Insurance - $1,200 per year (
- Utilities - $0 (paid by the tenant)
- Garbage Pickup - $0 (provided by the city)
- Lawn and Groundskeeping - $0 (tenant is responsible for mowing)
- Homeowner's Association Dues - $0
- Auto and Travel - $25 (cost to travel to rental property)
- Advertising - $100 (cost to advertise property)
- Accounting and Legal Expenses -$250 (cost for annual accounting/legal expenses)
- Property Management (10% of gross rents)
- Repairs & Maintenance (5 % of gross rents)
- CapEx (5% of gross rents)
The example below shows how we calculated the Operating Expenses using our Free Rental Property Spreadsheet.
Download our Free Rental Property Spreadsheet to Calculate your Rental Property Operating Expenses and Analyze the Rental Cash Flow for your Rental Properties.
