Multifamily using down payment assistance

[Account Closed]

There are a number of seasoned investors on this thread, so I'd like to take advantage of that and post a deal I'm working on--in fact, using Charles Best's "Down Payment Assistance" strategy.

The property is 70% occupied and current rents are slightly below market. As such, this is a "value added" buy.

Let's say the appraised value is $3,350,000.

I purchase the property for $3,350,000, for which I need 20% down.

New loan amount is 3350000 x .80 = 2680000.

From 2680000 new loan proceeds, the seller is paid his asking price of 2475000, leaving 205000.

I pay my Down Payment Assistance equity partner 15% of the required down payment (670000 x .15) = 100500 up front.

I keep the remainder for reserves (205000 - 100500) = 104500.

The monthly payment is 2680000 x 6.5 = 16939 (fully amortized).

Plus monthly interest only payment on borrowed down payment (670000 x .8 = 4467).

Total debt service = 16939 (1st) + 4467 (2nd) = 21406

Total monthly actual rents = 39340. A rough estimate of monthly Net Operating Income would be 50% of monthly actual rents = 19670

Net Operating Income (19670) minus total debt service (21406) = 1736 (negative; use reserves for this)

Once the building is optimized (95% occupancy), break even is achieved and valuators (cap rate, NOI) improve. Then I cash out refinance at 12 months with new 80% loan and repay my equity partner his 670000. I must make sure that the new appraised value will be enough to repay the 670000.

Does this make sense or do I need more discount to fair market value so that I at least break even before I add value by maximizing occupancy? The building has recently been fully rehabbed, so there will be no start-up costs for me.