Bad assumption. 

You mentioned STRs--STRs are illegal in many parts of SLC (but I don't know about their status in Provo), and it's probably pretty likely that most apartment complexes have anti-STR arbitrage clauses in their leases (though, that's just an assumption).I'd suggest connecting with an experienced investor-friendly agent who knows the market, and also a good mortgage broker who can advise you on your financing options (I work with an excellent agent & mortgage broker in SLC--DM me if you'd like their contact info).IMO, house hacking is the best way for new investors to get their start for a long list of reasons.

So my question is should I be building a proforma on the assumptions I listed or from what the market seems to be indicating based on cursory view.

I am under the assumption a refinance can only happen with no liens on the property.  

I believe it is a false assumption that there is malice intended, or a lack of confidence in a deal.Every person has a different risk tolerance, need & definition of what works for them is. 

Then, echoing what Spencer mentioned, making this assumption also only makes sense if you are self managing with no experience.  

I agree with you that people should not be rewarded for bad choices but you make the assumption that people needing help make bad choices.  

My assumption is that prices will eventually level off or drop a bit.

So the assumption is that the duplex you note below will rent for $2,550 per side ($5,100 total) as a medium term rental and be rented 90% of the time? 

Then confirm those assumptions with an experienced investor.Multifamily is about the benefits of scalability.