What types of expenses must be estimated in the Direct Capitalization process?

In the Direct Capitalization process, estimating expenses accurately is crucial for determining the net operating income of a property. Fixed expenses, variable expenses, and reserves are essential components that need to be estimated because they directly affect a property's cash flow.

Fixed expenses are those that do not change with the level of occupancy or usage of the property, such as property taxes and insurance. Variable expenses fluctuate based on occupancy and operational demands, including maintenance and repairs. Reserves are set aside to cover future capital expenditures, which ensures that funds are available for necessary repairs and upgrades to maintain the property's value.

Understanding these expenses allows real estate professionals to create realistic projections of net income, which is vital for assessing the property's value in the Direct Capitalization approach. The other answer choices focus on different categories that either overlap with the needed expense types or do not encompass the broader needs for financial forecasting in Direct Capitalization. Thus, the combination of fixed, variable, and reserve estimates provides a comprehensive framework for operational cost analysis in real estate investments.