2 bed, 1 bath SFR with built on 1 bed 1 bath Apt

[Daren H.]

I need a little advice on the subject potential opportunity. Currently, I only own several SFRs and that is all I have focused on for the most part. I want to make sure I am looking at the subject opportunity pros and cons for a buy and hold. I met with a seller yesterday (burned out landlord) to view a property they want to sell (off market, seller called me on a mailer I sent). Anyway, the property is different from what I am use to analyzing. The apartment is attached to the primary house and the tenants share 1 common wall (they are really two separate living units). The electricity is separately metered but water and gas are not (this would have to be worked out). Nevertheless, I am assuming this should be treated like a typical duplex. Is it that simple or should I be looking at this differently? Would the pros and cons be the same as a typical duplex? From a tax perspective, the property is identified as a SFR. Should I be concerned about this? The neighboring properties are similar looking SFRs except they do not have an extra apartment.

The seller and I will be talking again this evening to try and reach an agreement on price/terms. The Seller asked for $100K during our initial telephone discussion (I didn't get the feeling this was firm). My offer price after seeing the property was $85K. The property could be rented right now but I estimate ~$5K in touch up to boost rents. The 1 bed, 1 bath apartment is rented at $650 and currently occupied. The primary house most recently rented for $750 but comps should comfortably support $800-$850 (now would be a good time to update the vacant unit and raise the rent). Here is a summary of the numbers. Tell me what you think and let me know what I am missing.

$90k offer price (current offer is at $85k but assumes agreement at $90k)

$26.5k (20% down payment, closing costs, rehab). I could lower the out of pocket amount to ~$19.5k through financing part of closing cost and paying myself a commission (use commission for $5k rehab). Purchase price would increase to ~$97k (same net to seller).

Rent $1400 (based on what units currently rent for but I would expect to improve) 

Vacancy $98

PM $100 (my PM flat fee for 2 units)

Leasing $75 (to cover PM fees for leasing new tenants)

Maintenance/Reserves $160

Insurance $65

Taxes $200

Debt Service $392 (30 year fixed at 5.125%)

Cashflow ~$300

CCR ~14%

The property was built in 1970 but is in good condition overall. The primary house is approx. 1000 sqft and the apartment is approx. 700 sqft. The neighborhood is quiet, near park, school, and quick access to a primary highway that gets you to Downtown Dallas (approx. 25-30 mile drive to downtown). The city population has grown rapidly in the past 10 years and schools meet or exceed standards overall.