What characterizes variable costs in real estate finance?

Variable costs in real estate finance are characterized by their direct relationship with occupancy levels and revenue generation. This means that as the occupancy of a property increases or decreases, the variable costs fluctuate accordingly. For example, expenses such as utilities, maintenance, and supplies are considered variable costs because they typically increase when more units are occupied and decrease when fewer units are occupied. This is distinct from fixed costs, which remain constant irrespective of changes in occupancy or revenue. Understanding the nature of variable costs is crucial for effective budgeting and financial forecasting in real estate, as these costs can impact the overall profitability based on how well the property is performing in terms of tenant occupancy and rental income.