If you're getting started with real estate investing or managing a rental property, one of the most important things to understand is real estate operating expenses. These are the costs it takes to run and maintain a property. Knowing these numbers helps you plan your budget, avoid surprises, and make smart choices.
At first, it might feel a little confusing, especially if you’re new to real estate. But don’t worry. This guide will walk you through the basics in a simple way. By the end, you’ll understand what real estate operating expenses are, how they work, and why they matter for your rental business.
So, what exactly are operating expenses in real estate? These are the regular costs you need to pay to keep your property running smoothly.
Think of them as the bills that come with owning a rental, even if no one is living there at the moment. These are different from loan payments or big upgrades. Operating expenses are more about the everyday things that help keep the property safe, clean, and ready for tenants.
If you're not aware of these costs, you could end up losing money without even realizing it. For example, forgetting to plan for these expenses might mean you're charging too little rent or spending more than you're making. This can hurt your profits and make it harder to grow your real estate business.
Whether you own a single rental home or several units, tracking your real estate operating expenses is one of the smartest things you can do. It helps you see where your money is going and shows you how to make better financial choices. Once you understand the basics, managing a rental property becomes a lot less stressful.
If you're wondering what operating expenses for a rental property usually include, you’re not alone. Many new landlords are surprised by how many small costs can add up. Knowing what to expect will help you plan your budget and avoid unexpected bills.
Here are some of the most common rental property operating expenses:
These are just the basics. Depending on your property, you might have a few other costs too. For example, some landlords pay for lawn care, pest control, or security services. All of these count as operating expenses for a rental property, and it’s smart to track them all in one place.
Now that you know what these costs include, let’s look at how to calculate operating expenses for a rental property. The good news is that it’s not too hard.
Start by writing down all the regular costs that come with running your property. This includes things like:
Once you have your list, add up the total amount you spend each month. For example, let’s say:
That means your operating expenses for the rental property total $450 per month. If you want to know your yearly cost, just multiply that number by 12.
Keep in mind, not every cost shows up every month. Some, like pest control or big repairs, might only happen once or twice a year. It’s a good idea to estimate these and include them in your yearly budget so you’re not caught off guard.
When you know how to calculate operating expenses, you can figure out how much it really costs to own and manage your property. This helps you set the right rent, stay profitable, and plan for the future.
Keeping track of your operating expenses for your rental property is a smart habit. It helps you see how much money you’re really spending, so you can make better decisions.
When you know your costs, you can:
Even if you only own one property, tracking expenses can protect your profits and help you grow your business the right way.
While you can’t avoid all costs, there are smart ways to lower your rental property operating expenses. Here are a few ideas:
These simple steps can make a big difference in how much you spend each month — and how much you keep as profit.
Understanding your real estate operating expenses is one of the best ways to protect your rental income. When you know what you're spending and how to manage those costs, you can plan better, earn more, and avoid surprises.
By tracking your expenses, finding ways to save, and staying organized, you'll set yourself up for long-term success in real estate.
1. What counts as operating expenses for a rental property?
Operating expenses include any regular cost needed to keep your property running. This covers things like repairs, insurance, taxes, utilities (if you pay them), lawn care, and management fees. It does not include mortgage payments or major upgrades.
2. How can I plan for unexpected expenses?
Set aside a small amount each month in a separate “maintenance fund.” This helps cover surprise repairs or yearly costs like roof checks or pest control. Planning ahead makes your rental property operating expenses easier to handle.
3. Are real estate operating expenses tax-deductible?
Yes, some operating expenses in real estate can be written off at tax time. Keep receipts and records of all your property-related spending. Talk to a tax professional to make sure you're getting every deduction you qualify for, including potential for rental property depreciation.
4. What’s a good percentage of rent to spend on operating expenses?
A common rule is to expect about 30% to 50% of your rental income to go toward operating costs. This can vary by location and property type, so tracking your actual numbers is key.
5. Can managing my property myself lower expenses?
Yes, handling things like rent collection, small repairs, or tenant communication yourself can reduce operating expenses rental property owners often face. Just make sure you have the time, tools, and knowledge to do it well.