Replacement Reserves and Discounted Cash Flow

[Matt Schelberg]

Frank Gallinelli's great book "What Every Real Estate Investor Needs to Know About Cash Flow" got me thinking about how to properly account for replacement reserves in rental properties. If we discount future rents using discounted cash flow (DCF), shouldn't we also discount a deferred expense like roof replacement?

In other words, if I expect to spend $5,000 to replace a roof every 20 years, can I use DCF analysis rather than simply dividing $5,000 by 20 years and using this as my annual allowance for replacement? This could have a significant impact on cash flow calculations, so let me know if you think this would be "fudging the numbers" on deal analysis. Please try to shoot holes in my idea!

Thanks,

Matt