That's way too much unless you basically re-build the whole thing.Second, even with a basement unit, the cap is way too low for 1.3M, especially you are putting 480K cash in reno. 

I know I could try to low ball the offers but it seems pretty consistent in many areas.

I THINK this property will appreciate significantly with what is going on in the neighborhood, but even if it doesn't, I'm confident I can have it rented or sell with a low chance the value dipping below what I paid.I'm not trying to aggressively expand right now...

My husband are new to the game and have an opportunity to buy a neighbors house at a low cost.

I do think we can convert the top to a 3-1 for relatively low cost and charge more for it. 

You go too low and people begin to wonder “what’s wrong with the house?”

In the near future I will be using an FHA loan with a low down payment to purchase my first investment.

That mortgage has to be pretty low right now. 

In addition, we can lock a rate while they are still low for a very long time.My question: HELOC or mortgage?

Inventory is still at an all-time low, and we've basically accepted that as the new normal for the past few years - especially due to the fact that there is practically no development in the SFH arena - only for new apartments/condos - and those can barely keep up with the demand.