Are taxes killing this deal?

[Phillip Lanier]

Hello BP family!

My questions are two fold.

First question:

I am looking at a house on MLS that is owned by the USDA (repo'd). It's in a great area; just one block from a good middle school. I want to pick it up as a rental. The list price is $58,000 and can rent at $900 - $1,000.

It will need about $30,000 in repairs, but I may get away with $25,000.  The big items are some roof work, HVAC (former owners stole the outside unit along with fixtures and even the toilet).  Busted windows, patch work (holes punched in walls), replace garage door....  apparently, the former owners didn't leave graciously. 

So even at the high end, this would meet the 1% rule. $88,000 total invested and rent for $900 to $1,000. However, property taxes are $3,300 annual or $275 a month. Add $100 for insurance and figure in property management, that's more than the principle and interest for a mortgage! Mortgage would be about $350. So my monthly obligation would be $850. If this meets the 1% rule, why am I not seeing any "meat" for CapEx and cash flow? Is it the taxes?

What are your thoughts? 

Question 2:

On the MLS, it says USDA as the owner. Is this considered a REO? Tax records show the original owner, but it may need updating.

Can someone explain the buying process for USDA listed homes?  

Do they negotiate on price?  

Thanks in advance!

Phillip Lanier