What is typically included in the allowable operating expenses when using the income approach?

The income approach to property valuation focuses on the income-generating potential of a property, and allowable operating expenses are critical to accurately assessing that potential. When considering the allowable operating expenses, it is key to include both vacancy losses and collection losses. Vacancy losses represent the income lost from unoccupied units, while collection losses reflect the expected unpaid rents from tenants. Together, these losses provide a more comprehensive view of the actual income a property can expect to generate, which is vital for determining its value under the income approach.

The other options do not fully capture the necessary components for calculating operating expenses in this context. Focusing solely on fixed costs does not account for all variable expenses that may affect income. Costs directly tied to tenant services, while important, do not encompass the entirety of operating expenses that also include risks of vacancy and collection losses. Lastly, stating all operational costs of comparable properties does not specifically relate to the subject property’s unique expenses and circumstances; it is essential to consider the specific losses associated with the subject property being valued.