Small houses are commanding high enough rents now that renting out a bigger house is not necessarily going to give me that much more marginal rent/house value.  

Those spots are being redeveloped and thus commanding higher rents and people were furious calling the press, lawyers, they picketed outside their complex, But in the end the property owner defended himself saying he was within his rights to increase the rents and You are within your rights to charge what you want for rent, You give proper written notice of increase per the lease terms, He can decide to stay or not.

Renovated single family's in Newport command a very high price even if they are small.  

My father was also in the Navy As Command Master Chief.

I had the typical no shows and the typical "oh its great for some one i am sure you will rent it in no time" but to be fair it was attracting a 'better' crowd because of the pics than the area commanded.

So it's not a "lowball" offer.A common mistake I see is new investors making true "lowball" offers on retail properties that command retail prices.I wrote a blog that might help you find an agent in the area.

@Nixon VayupakI agree with @Jay Hinrichs - the risk reward is too great - and the ARV you were given may be spot on  - small towns like that so far away from a population center just do not command much if any in regards to RE prices or rent for that matter.  

There are a few areas inside the loop that command a slightly lower price point, but in my opinion any major redevelopment there is likely to be farther off.

And yes, oftentimes, with just a change in presentation, you can command top dollar over your competitors, as is seen here. 

I would look and study the competition to see what their units look like and the rents they're commanding for those units according to the amenities provided.