What are uncontrollable operating expenses in real estate?
What Are Uncontrollable Operating Expenses?
Uncontrollable operating expenses in real estate are those costs that property owners or managers have limited power to influence, such as property taxes set by local governments and insurance premiums dictated by market rates. Utility rate increases and expenses from natural disasters or unforeseen major repairs also fall into this category, as they are typically unpredictable and unavoidable. These expenses are an essential part of the overall budget in property management but cannot be significantly altered by the property owner's actions.
Here's an overview of the typical uncontrollable expenses property managers incur:
- Property Taxes: Determined by local government assessments and often based on property value, these are fixed costs that the owner must pay.
- Insurance Premiums: Costs for property insurance are subject to market rates and policy terms, and while shopping for competitive rates is possible, the overall expense is largely uncontrollable.
- Utility Rate Increases: While usage can be controlled to an extent, the rates set by utility providers are beyond the control of the property owner.
- Natural Disasters or Unforeseen Repairs: Expenses arising from events like floods, earthquakes, or unexpected major repairs are usually unpredictable and unavoidable.
Other examples of uncontrollable expenses may include certain utility costs, although this can vary. In some situations, utilities might be considered partly controllable or uncontrollable depending on usage and rate fluctuations set by providers. It's important to note that while tenants and landlords can negotiate various aspects of a lease, including caps on controllable expenses, uncontrollable expenses like taxes and insurance are typically passed through to the tenant and are not usually subject to negotiation. These expenses are typically factored into the overall budget for property management, but they cannot be significantly altered by the actions of the property manager or owner
