Operating expenses, often shortened to OpEx, are the day-to-day costs of owning and operating an income property. They include property taxes, insurance, utilities, repairs and maintenance, janitorial, security, and property management fees. Operating expenses are subtracted from operating income to arrive at net operating income (NOI). Importantly, OpEx excludes financing costs (debt service), capital expenditures (CapEx), depreciation, and income taxes.
OpEx vs CapEx
The distinction matters for both NOI and recoveries:
- OpEx — recurring costs to keep the property running (taxes, insurance, utilities, maintenance)
- CapEx — investments in long-lived improvements (roof replacement, new HVAC)
- NOI subtracts OpEx but not CapEx, debt service, or income taxes
Operating expenses and recoveries
In net leases, much of OpEx is recoverable from tenants through CAM/NNN charges. Which expenses are recoverable, and any caps or exclusions, are defined in each lease — making accurate expense categorization central to correct reconciliations.
A property’s operating expenses for the year total $400,000 across taxes, insurance, utilities, maintenance, and management. Against $1,000,000 of operating income, that leaves $600,000 of NOI.