Long term rental w/ STR guest apartment

[Jeremy Dockendorf]

I’ll pose my questions first and fill you in with the scenario below. Looking at the numbers on this deal it seems viable, but I have two concerns I’d love to hear feedback on. 

1. The property value is decreasing. It is a bigger house on a bigger parcel than most of the others around it. The value of most homes in the neighborhood is around $140k. This has been listed at $175k for almost a year and still hasn’t sold.

2. Is it likely that doing STR in the guest apartment above the garage would deter long term renters for the house?

Quick background: 

It's a single family home in a "just ok" neighborhood. Built in 1930 with 4 bed, 2 bath, and needs moderate rehab - kitchen cabinets/countertops and a bathroom vanity/sink. Has a 3 stall attached garage with a 1 bed, 1 bath apartment above it with private access - needs no rehab. Says it's licenced as a 2 unit rental. Being located right across from a hospital and not far from a downtown area, I think there is good potential doing STR in the apartment above the garage while doing LTR in the house.

The potential numbers:

Purchase for $165k, $10k rehab

Rent: $1350 house, $792 STR apartment ($99 @ 8 days occupancy)

Cash flow: $560

NOI: $1228

Purchase cap rate: 8.94%

Cash Return: 14.6%

IRR: 11.86% at Year 5 assuming home holds value of $165k at 10 years.

All the numbers look good to me, but I still need to reach out to the agent to learn more about the rental history. Seems odd that it’s been for sale for almost a year. I’m totally new to this, so would love to hear your opinions or get ideas on things I’m not considering!

Thanks