Certified Pennsylvania Evaluator Practice Exam

What could be classified as a proper operating expense in property management?

1. Mortgage payments

2. Costs related to repairs

3. Income tax assessments

4. Depreciation costs

The correct answer is: Costs related to repairs

In property management, operating expenses refer to the costs incurred for the day-to-day operations of a property. These expenses are necessary for maintaining the property's functionality and ensuring it remains attractive and safe for tenants. Costs related to repairs fall into the category of proper operating expenses because they directly influence the property's upkeep and operational efficiency. Routine maintenance and necessary repairs ensure that the property remains in good condition, ultimately preserving its value and the tenants' satisfaction. These expenses are typically recurring and are essential for the ongoing management of the property. While mortgage payments, income tax assessments, and depreciation costs are important financial considerations, they are generally classified differently. Mortgage payments are considered financial expenses rather than operational costs because they relate to the financing of the property. Income tax assessments pertain to the owner’s taxable situation rather than the direct operation of the property itself. Depreciation represents a reduction in the value of an asset over time for accounting purposes and is not an out-of-pocket expense incurred regularly in property management. Hence, they do not qualify as operating expenses in this context.