There appears to be no adjustment for the degree of risk for the assets selected to compare, without that analysis no judgment can be made.5.

Generally HomePath is pretty straight forward, just a little paper intense to deal with, but your Realtor will deal with that.

Prices are very high here, and demand from other investors is intense; should I look elsewhere for my first deals?  

One "curve ball" (baseball reference courtesy of the World Series which starts tonight) in this calculation is: Do any of these loans have an adjustable interest rate?  

I adjust up and down for garages and basements and condition. 

And also suggest that if its a large concern that the people living there are not made aware that they are selling, then suggest that you "inspect the house as an insurance adjuster." 

These are very high maintenance, intense hands on management, that really should be done by the person that owns the property.

Frankly, if I were you this project would not be worth my time and effort, as it's too labor intensive and complex to add another bedroom and bath.Furthermore, it is not standard to have a master bedroom in the basement coupled with the fact that you would need to have proper ingress and egress approved by the city.I am sure that there are lots of other opportunities to pursue in that neighborhood and beyond.Lastly, all the BPers who chimed in are simply giving their views as well, but, it's your call on this one as to whether or not you want to undertake this massive headache for very little ROI.

The real answer lies in your 1040 tax bracket (your W2 income + Sch E) = Adjusted Gross Income. 

To see some examples of this analysis, find some sample appraisals and see how the pros do it with comparables and adjustments.