What happens to your net income when operating expenses rise?

What happens to your net income when operating expenses rise?

• A. It increases
• B. It stabilizes
• C. It falls
• D. It fluctuates unpredictably

Answer: (C)

When operating expenses rise, your net income decreases because net income is calculated by subtracting total expenses from total revenues. If operating expenses increase while revenues remain the same, the total amount deducted from revenues is higher, resulting in a lower net income. This relationship highlights the importance of managing operating costs effectively in real estate to maintain profitability. Rising expenses can come from various sources, such as maintenance costs, property management fees, utilities, and other operational expenditures. As these costs increase, they directly impact financial performance by reducing the amount of money left after all expenses are accounted for. Therefore, recognizing how operating expenses affect net income is crucial for anyone involved in real estate financial management.

When operating expenses rise, your net income decreases because net income is calculated by subtracting total expenses from total revenues. If operating expenses increase while revenues remain the same, the total amount deducted from revenues is higher, resulting in a lower net income.

This relationship highlights the importance of managing operating costs effectively in real estate to maintain profitability. Rising expenses can come from various sources, such as maintenance costs, property management fees, utilities, and other operational expenditures. As these costs increase, they directly impact financial performance by reducing the amount of money left after all expenses are accounted for. Therefore, recognizing how operating expenses affect net income is crucial for anyone involved in real estate financial management.