Operating expenses

OpEx does not include debt service, capital expenditures, or depreciation. Careful classification matters because operating expenses reduce NOI directly, while capital items are recovered over time.

A property's annual OpEx includes $12,000 in taxes, $3,000 in insurance, $5,000 in routine maintenance, and a management fee.

The classification decision is where reporting credibility is won or lost. A roof replacement booked as maintenance understates NOI this year and misstates the property's earning power; the same item booked as capital tells the truth about both.

Set a capitalization threshold and a written test — does the work extend the asset's life or restore it? — and apply it consistently. Book every invoice to the property, unit, and work order it belongs to, so owner statements can be defended line by line.

Paying vendor invoices outside the property record, moving items between categories to smooth a month, and leaving out a management fee on self-managed properties, which makes the property look more profitable than it is.