Fixed expenses differ from variable expenses in that fixed expenses:
Correct Answer
C) Do not change materially with occupancy, like taxes and insurance
Why this is correct: Fixed expenses, like property taxes and insurance, are incurred regardless of the property's occupancy level. They do not fluctuate materially with changes in occupancy or revenue. Why the other choices are wrong: "Apply only to commercial property types" is false; residential rentals also have fixed expenses. "Are always the largest line on the statement" is not necessarily true; variable expenses can be larger. "Disappear entirely the moment the building goes fully vacant" is incorrect; fixed expenses like taxes still must be paid. Exam tip: Fixed expenses stay constant; variable expenses change with occupancy.
Why This Is the Correct Answer
Why this is correct: Fixed expenses, like property taxes and insurance, are incurred regardless of the property's occupancy level. They do not fluctuate materially with changes in occupancy or revenue. Why the other choices are wrong: "Apply only to commercial property types" is false; residential rentals also have fixed expenses. "Are always the largest line on the statement" is not necessarily true; variable expenses can be larger. "Disappear entirely the moment the building goes fully vacant" is incorrect; fixed expenses like taxes still must be paid. Exam tip: Fixed expenses stay constant; variable expenses change with occupancy.
More Income Approach Questions
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In a DCF, what is the reversion?
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