What distinguishes capital expenditures from operating expenses?

The correct answer highlights that capital expenditures are significant investments made to enhance a property’s value or extend its useful life. This encompasses improvements, renovations, or major repairs that result in a lasting benefit to the property. Such expenditures can include adding new systems, like HVAC, or making structural improvements, which ultimately elevate the property's market value.

Understanding this distinction is crucial for financial planning and property management. While operating expenses refer to the day-to-day costs of running a property—such as maintenance, utilities, and property management fees—capital expenditures are less frequent but far more impactful, as they contribute intrinsic long-term value to the asset.

The other options do not accurately capture the fundamental difference. For example, saying capital expenditures are recurring misrepresents them as these expenses are typically one-time or less frequent expenses linked to improvements rather than ongoing operational costs. The notion that capital expenditures are inherently higher than operating expenses is misleading, as their amounts can vary significantly depending on the project, and not all capital expenditures are greater in value than operating costs. Lastly, the misconception that tenants pay capital expenditures while owners cover operating expenses overlooks that capital expenditures are part of property improvement strategies that owners typically finance to enhance their investment.