Underwriting Capex and Repairs with actuals

[James Kojo]

I'm looking at a smaller deal where the financial statements are not well-specified. It's a mom + pop owner-operator situation.

For instance, it looks like they may have put large capex expenses under "repairs." I see a steady stream of monthly repair expenses ranging from $100-500/month, then there's one month with $9K and another with $3K, etc.

I've asked them for more details, of course.

My question is, if I'm underwriting a deal with actuals, but I only have a limited history, how should I account for capex? Should I take the total actual expenditure over the time periods that i have, and take an average?

Or should I try to figure out what the capex was used for, and try to average it out over the useful lifetime?

For example, if they had a 9K charge for replacing the roof in 2017, and that was the only capex I could find in the 3 year history that I have, would I estimate capex reserves at 3K/year or $900/year for a 10 year roof?

What would a lender do?

Thanks!

James