Potential Duplex Purchase

[Mitch Mitchell]

Hey everyone, I am considering buying a duplex with a FHA loan and living in one of the units while renting out the other one. Asking price on the property is $85,000 and each unit is currently rented for $500 and $550. I would be living in the unit that rents for $550. After putting 3.5% down, my monthly PITI including private mortgage insurance should be around $575. So basically I would be living there for $75 a month while the other unit is occupied.

The house does need a little bit of work and it needs to meet FHA requirements (peeling paint and whatnot. The roof is brand new, siding is brand new, foundation is good.) The biggest concern is that half of the house has updated electrical but the side that would be rented has knob and tube wiring. Both electrical panels are new and up to code.

So the questions are: Would you make this deal? What should I do about the wiring in the second unit? Reduce my offer? Ask the owner to update it? 

The long term plan is to finally move out after a few years and rent out both units. Currently the rents are below market value and we are going to do a lot of updates while we are living there. The two units together could easily bring in $1200 a month.