Would mortgage principal payments be considered an operating expense?

Mortgage principal payments are classified as financial obligations rather than operating expenses because they represent the repayment of borrowed capital rather than the costs associated with managing and maintaining a property. Operating expenses typically include costs like property management fees, utilities, maintenance, and property taxes, which are directly related to the day-to-day operations of the property.

In contrast, principal payments are part of the financing structure of a real estate investment. They do not reflect the operational costs incurred in running a property but rather relate to the repayment of the loan amount that was borrowed to finance the purchase of the property. This distinction is crucial for financial reporting, as operating expenses impact the cash flow from operations, while debt service payments (including both principal and interest) are managed separately from income derived from the property's operations. Therefore, identifying mortgage principal as a financial obligation emphasizes its role in the financing rather than the operational aspect of real estate management.