Help! First investor property

[Benton Rochester]

Hi, I'm under contract with my first income property and it's a bear.

Basically, it's a house from 1910 in bad shape (low ceilings, uneven floor, strange cellar/basement, tiny rooms). it's about 1500/sq feet in Old Town. It's a wonderful location but the house is rough.

My math puts me at a 3% Cap Rate, 5% ROI, and -$300/month cash flow.

Here's my plan:

1. Rent house as is for $1600/mo (less than prior tenants because the house is getting worse). 
2. Divide lot and pay 150k to put a nice studio apartment/ADU that I can rent for $1500
3. Now I have $3100/mo income on about 250k down but the primary house is just asking for crack dealer type renters.

My fear here is how you push an old house long enough to get the value out of it! It's probably looking like a scrape job down the road which scares me.