Small multi-family property buy and hold analysis help...

[Eric Kluth]

I'm looking to buy my first property. The strategy is to buy and hold a small multi-family (2-4 unit) property in the Portland-Vancouver-Beaverton-Hillsboro area to occupy and rent out the other units. I will be financing the property with a FHA loan with 3.5% down. I am finding most of the listings on the MLS are priced too high. Ideally I would like to find one that is not distressed in a good neighborhood to move into. I have come across a duplex that I would like some advice on.

Asking Price: $230,000 

Unit 1 is 3 bedrooms, 2 baths, 1,245 sq ft

Unit 2 is 2 bedrooms, 1 bath, 1,074 sq ft

Property taxes $3,580

Est FHA monthly mortgage: $1,450

According to the listing unit 1 is renting for $900, and unit 2 is renting for $670. On rentometer.com the average rent in that area for a 3br is $1,283, and a 2br $906. Even checking Craigslist the average rents are $900-$1,300.

With the current rental income is does not meet the 1% nor the 50% rule. However, using the adjusted gross income that I've researched of $2,189 ...it would meet the 1% rule at $218,900. This would be my maximum asking price. But with these numbers, even if it hits the 1% rule it doesn't meet the 50% rule. $2,189/2=$1,094.5 left for the mortgage.  The property would need to be in the range of $170,000 for that to happen.

Would you pass on this property, or pursue it?

I have been looking for a while on Craigslist and on the MLS and this is the first property that could meet the 1% rule if my offer of $218,900 were accepted.

Am I wrong to expect to find a non-distressed property that would meet the 1% and 50% rule in this market? Another strategy would be to find a distress property and use a FHA 203k loan to fix it up. Any advice is appreciated.