Property ManagementIntermediateDelaware Exam

What is a 'capital improvement' versus 'operating expense' in Delaware property management?

ACapital improvements are funded by tenants; operating expenses are paid by the landlord

BA capital improvement adds value, extends useful life, or adapts the property to a new use; an operating expense maintains the property in its current conditionCorrect

COperating expenses are tax-deductible; capital improvements never are

DCapital improvements are made only to commercial properties; operating expenses apply to both

Why A capital improvement adds value, extends useful life, or adapts the property to a new use; an operating expense maintains the property in its current condition Is Correct

Answer B: A capital improvement adds value, extends useful life, or adapts the property to a new use; an operating expense maintains the property in its current condition

Capital improvements (CAPEX) are expenditures that add value, extend the property's useful life, or adapt it to new uses — like a new roof, HVAC replacement, or building addition. Operating expenses (OPEX) maintain the property's existing condition — like routine maintenance, utilities, and property management fees.

Exam Tip: Property Management

Property management questions cover landlord-tenant law, security deposits, and maintenance responsibilities. Know the differences between gross, net, and percentage leases.

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Key Terms to Know

Closing Costs

Fees and expenses paid by the buyer and/or seller at the closing of a real estate transaction, in addition to the property's purchase price.

Earnest Money

A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.

Contingency

A condition in a purchase contract that must be satisfied before the sale can proceed to closing.

Purchase Agreement

A legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.

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