Help me analyze my first investment property: 2 unit 160k

[Scott Bold]

I've wanted to get into real estate investing for a while now and I'm finally at a point life-wise (settled in an area with a job I like) that I can start making deals.

My goal with real estate is to pick up 5-10 properties in the next 5-10 years that are solid, cash-flowing rentals.

My real estate agent who is also a friend and investor brought us a property that she is listing for friends of hers. The basic story is that these people aren't good landlords and don't want to do it anymore because they had a tenant that didn't pay the bills. Our agent doesn't want to buy it because she just closed on 2 properties and is tapped out for the moment.

Property Details:

2 unit, upper (2nd/3rd floor) and lower (1st floor/finished basement)

List Price: 175k

Agent's suggested offer: 160k

Owner pays:

Taxes: 2600 yearly

Insurance: 800 yearly

Oil heat: 1200 (last year with low oil prices) yearly

Water/Sewage: 1400 yearly

Trash: 400 yearly

Mortgage @ 160k with 20% down: 611/month

1st Unit: Rents for $950. Large 1 bedroom with finished basement, sunroom, large living room and kitchen, hardwood floors, washer dryer in unit, lots of closet space and storage. Comes with tenants who have been there 2 years and pay on time.

2nd Unit: Previously rented for $950. 2-3 bedroom unit, but with unconventional layout. The first floor has a large eat in kitchen (decent shape with pantry), nice-sized bathroom in decent shape, washer/dryer off the main hallway, and then two large rooms with closets. The 3rd level has 2 medium sized rooms with sloping ceilings that could be used together as a 3rd level suite or as 2 separate bedrooms.  Currently vacant.

Cap rate: If I include a 5% vacancy rate and 2000/yr maintenance allowance, the cap rate is ~8%.

ROI: With vacancy/maintenance, ROI on my 32k down payment is about 13%.

Other details: The property is in a nice looking, quiet neighborhood and is in overall good condition with new windows. The location is close to major highways, university, hospital, etc. Also, it is in one of the top school districts in the area. It is a twin house and the neighbor is an older woman so there is the potential to buy the other half in the future. My fiancee is from the area and knows it well...we also have many local connections.

Work needed: The top unit needs new flooring and paint. Also, I don't know if it makes sense to invest in moving a wall to give the unit a more traditional living space (not sure if possible and how expensive). Also, I'd eventually like to get gas heat and have it split between the 2 units which I estimate would cost 10k. 

Hesitations: We are investing in my fiancee's hometown and the real estate agent is an old high school friend. I generally trust her judgement but I know she is friend's with the sellers and has multiple competing interests to balance. Also, I've always wanted to rent units that I understand and would rent myself...which makes me concerned about the unconventional layout of the top unit.

I know this is a lot but I'm looking for some feedback to help get me over the hump on my first deal. Thanks for any input.