Duplex Rehab/Rental Analysis -- Is this a good deal?

[Taylor Horsager]

Hey everyone!

I am a new investor saving for a down payment, and am analyzing deals for practice. I came across what I believe to be a very intriguing deal, and wanted to put it out there for input from the community. 

It is a duplex apartment with two 2br/1ba units, totaling roughly 2500 sq/ft. It is listed for sale at $399,000. Average prices for similar buildings on the same street go for anywhere between $400-500k. 

My strategy would be to do an FHA loan at 3.5% down, along with an FHA 203k renovation loan in order to improve the property. Some of the things that need work include: renovating the wood flooring, removing the wall paper and repainting the walls and trim, renovating the kitchen and bathroom floors, updating the cabinets and appliances, etc... All relatively accessible improvements.

Additionally, there is an unfinished attic space with plumbing already installed. It would make a fantastic additional bedroom to the upper unit, and would increase the overall bed/bath and square footage of the building. 

Lastly, the city plan has indicated that this neighborhood is an area where the city plans to invest money on improving!

What do you think, is this a good deal? 

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My initial estimates put the cap rate at around 9%... and similar 2br/1ba apartments in the area rent for around $1500-1750. 

The property can be seen on Zillow by following the link below: 

https://www.zillow.com/homes/for_sale/fsba,fsbo,fore,new_lt/apartment_duplex_type/2083975172_zpid/0-500000_price/0-1911_mp/globalrelevanceex_sort/43.083462,-89.35695,43.082484,-89.358667_rect/18_zm/