Cap Rate 28 ??

[Vana G.]

There's a property I've had my eye on in a working class neighborhood (residents upkeep yards, partake in home improvements, plenty of small children playing outside). Advertised as triplex but county property search reveals it's a duplex (agent allegedly unaware of this). The current owner is living in the 1/1 unit, breaks even, cannot afford repairs and now in short sale. Per agent original loan in 2008 for $196K, current job status of owner unknown. Property needs upkeep and has some signs of distress.

Here are the numbers:

Asking price $40k

3 units (2/1, 2/1, & 1/1)

2/1 #1 = $600

2/1 #2 = $700

1/1 = 0 (inhabited by owner)

Taxes = 645/y

Utilities? (no separate H2O meters) I've guesstimated $1200/y

Insurance = Not sure, but guesstimated 2400/y

Vacancy rate= 100% occupied for the last 3 years

Rent Roll = 15,600/y

AOE = 4245/y

GRM (Based on 2 units)= 2.56

Cap = 28 (??)

My questions are as follows:

1. Did I calculate this correctly?? Cap of 28? (cash sale) Should I be basing everything on 2 or 3 units?

2. I know fixing the illegitimate unit will be costly and time consuming, but at this price point and cap rate should I even worry that?

3. What am I missing here?

Any thoughts?