REO Duplex deal

[Mariah Jeffery]

I'm in the Portland metro area. Getting cash flow in this area at all is difficult, and meeting the 1% rule is near impossible. However, I've been searching for two years and occasionally find something close.

Yesterday, I looked at a duplex in a good neighborhood a few miles from where I live. It's bank-owned, asking price of $160K. It's in pretty good condition with a few cosmetic repairs needed. It even had a new roof and new exterior paint recently. No more than $2K-$3K in fix-up costs should be needed.

The main problem is I don't know how to estimate the rent. Each unit is 810 sq ft, 2/1. I thought $750 and a friend with rentals in the area thought $750-$800, but the one comp on the same street shows 800 sq ft units renting for $650. Also, these same units were renting for only $525 in 2005, but the tenants were long-term and had not had their rents raised. Water/garbage is included in rent.

Comps indicate the value after fixed up is ~$200K. A similar, but larger, REO duplex in the area sold for $10K ABOVE the asking price 4 months earlier.

My question is how much to offer. I was thinking $150K cash when I thought the rents would be $1,500, but now it seems like the rents might be a bit high. Strictly going by the 1% rule, I'd have to subtract the $100/month utility bill from the rent to arrive at a price. But then I realistically would probably never buy something.

At $150K, if I take $120K back with a 20-year HEL, I'd basically break even the first year before taxes. My W2 income is high, so the tax benefits will be considerable.

I don't expect people on the internet who have never seen the place to tell me the magic # to offer. However, any guidance or insight would be appreciated.

Thanks,
MJ