During a financial analysis of an investment property, which expenses are NOT typically considered operating expenses?

Capital improvements are not typically considered operating expenses because they are expenditures that enhance the value of an investment property rather than cover its day-to-day operating costs. Operating expenses generally include the ongoing costs necessary to maintain and run a property, such as fixed expenses like property taxes and insurance, and variable expenses such as utilities and maintenance.

In contrast, capital improvements refer to significant upgrades or renovations that extend the useful life of the property or improve its overall market value, such as adding a new roof, remodeling a kitchen, or constructing an addition. These costs are treated differently in financial analysis because they are not recurring expenses that occur regularly but rather one-time or infrequent expenditures that impact the long-term capital structure of the property. This distinction is vital for investors and property managers when preparing budgets and financial projections, as operating expenses affect cash flow, while capital improvements represent investments that may yield benefits over a longer period.