Temp housing turned rental - okay not to buy at 70% of ARV?

[Andrea Castor]

Long story short, I have one gifted child (2nd grade), one "inclusion class" child (1st grade) and two more that will enter school in the next 3 yrs. Although we live in an excellent school district, its very large and isn't the dream we pictured raising a family. We are looking at moving to a neighboring small town, with about 3,000 people. We've met with the schools, we know its where we want our kids to be. The issue is getting into this town. Realtors have already told us contingent offers are rarely accepted, most properties sell within the first couple days and we have seen evidence of this as we've watched over the past year.

Rental prices are high at $1200-$1500 for a 1300-1500 st ft duplex. We really don't want to waste our money paying rent while we find a deal or building. Instead I've thought about the idea of buying something in this sq ft range and making it a rental after we build in 1-2 yrs. The issue is that we will have to pay fair market value.

Currently looking at two different properties, both have been on the market awhile because they are overpriced. Realtor is confident we can get them down with comp numbers. So not only would we save paying rent during the time we build, BUT, they'd make incredible rentals even at fair market value.

The numbers...

House #1 - 3 bed, 1.5 bath 1200 sq ft SFH - cost $105,000 20% down 4.5% = $426/mo Cap Rate 18.5%

House #2 - 3 bed, 2 bath 1500 sq ft SFH - cost $131,000 20% down at 4.5% = $531/mo Cap Rate 20.6%

I understand the risk with not having another exit strategy besides renting may not be ideal. Both are done to "rental standard" finishes so there would be some room to make a bit of money if we put in higher end stuff. Plus, the added benefit of saving upwards of $36,000 in rent over 2 yrs.

Does it still make sense? Our timeline is kind of crunched if we want our youngest in their preschool...