Hi. I'm looking for some help understanding the best way to factor in roof replacement cost, at a given time in the future, to the offer price. I would categorize this as CapEx expense of course but my question is around timing.

To be clear, what I am solving for is the offer price on a buy and hold duplex that will need a roof in 3 years. Hold time will be 15 years

If purchased today, my assumption is that in year 3 I will need to replace the roof, which I'll estimate at $8K.

So in working up an offer I am not sure how to account for this cost. All of the calculators I find have an upfront 'improvement cost' field, but that doesn't seem appropriate given that the roof still has 3 years useful life. (This is really a question, should I include it in upfront cost?) Some have a monthly CapEx% rate which is where it seems more appropriate. However, that doesnt seem to paint an accurate picture either since the cost will be incurred in year 3.

My thought was that I should spread out the cost over 3 years so that when it comes time to replace the roof, I will have that money in reserve. So $8K/36 months = $223/month in additional operating expense for the first 3 years. Doable, but again seems to skew the cash flow numbers inaccurately downward.

Here is where I get unsure of myself - In year 3 I will have purchased the roof. Once this occurs necessary monthly CapEx % reserve should, in theory, drop dramatically. I guess that can only be a good thing for the owner, but I dont understand how to project expenses out past year three with accuracy.

So, the question is - do I calculate roof replacement in to a lump sum up front cost, which will lower my offer. Or spread the cost over 36 months and reevaluate CapEx at that time. I havent tried to do the latter yet, but I am assuming it will give me the ability to present a more attractive offer to the seller as the cost will be spread out over time.

A final thought I had was to spread out the expense over the entire time I plan to hold the property, let's say 15 years. By the end of year 15 I will have recouped the roof cost, but it will be a big hit to the bank account in year 3.

Hopefully that all makes sense.

Curious as to how some of the more experienced folks handle this. Thanks in advance.