Overpriced Purchase!!!

[Russ Copeland]

Hello BP!!  I overpaid for a property.  There I said it. 

My quick back story. I was living in Las Vegas, NV and had a short time period to find a home to purchase in our new location of Eau Claire, WI. I went through a spreadsheet of homes in our (wife and I) price range and she pulled the trigger on a house we figured would be about a 13% ROI if we stuck to our original rehab plans of kicking in about $30k. Since we couldn't get eyes on the property ourselves we had 3 parties (2 family, 1 hired inspector) to look at the property. All said it was a solid house with usual old house issues. House asking was $90k, wife pitched $88k without me as she was getting antsy with other houses she wanted sold (I wanted to start at $70k). Needless to say they jumped on the offer, we were able to knock off an extra $500 bringing it to $87.5k.

Now jumping to current.  I got to the house and realized that all the feed back we had gotten was way off.  A little upset with all parties including myself as I guess I did not relay my intentions specific enough for what we needed in a house.  The one thing I didn't want to do was to worry about foundation and electrical.  Huh.  Now I'm looking at rewiring the entire house.  Good part is the house is laid out to make wiring to all floors through a central column were the chimney will soon be removed. 

So what's my problem?  The way the house stands I figure the house is actually worth $65k.  City assessment put it at $75k.  So I figure I'm starting out $20k in the hole with my original intentions to turn it into a rental property.  Average home rental in the area is about $750.  Our current mandatory mortgage (wife's dad fronted the purchase with his great credit) $350 but figure tossing in an extra $100 giving him a nice profit.  We are paying the actual mortgage of $65k and paying back a no interest personal loan to him for the rest.

So what's my question?  What would you do?  How would you try to keep the property as an asset/insvestment?