What is an 'operating expense'?

An 'operating expense' refers to the costs that are necessary for the daily functioning and management of a property. This includes expenses such as maintenance and repair costs, utilities like water and electricity, property management fees, insurance, and property taxes. These expenses are essential for maintaining the property and ensuring it remains a viable investment.

In contrast, costs related to acquiring a property, such as purchase price, closing costs, or financing fees, are not classified as operating expenses. Similarly, potential lost revenue from tenant turnover, while important for financial analysis, does not directly relate to operational costs and is more of an indirect expense. Marketing and advertising costs, while they may enhance occupancy rates, are also categorized differently and are not considered routine operating expenses. Therefore, option B is the comprehensive and accurate definition of operating expenses.