I have done it many times and it often separates me from the competition. 

Even in high traffic cities it can be tricky to keep occupancy over 85%, so you would have to be very competitive with your property to hit the 60% mark in my opinion where seasonality is so strong. 

The market here is very strong and competitive- appreciation is at a very high rate at about 5% annually.

In order to get the most competitive rate this way, you'll probably have to stay below 70 LTV and above a 1.3 ratio (that is why I was asking about if your sister would be paying rent).

Should I back out the deal and wait for another even with being in a fairly competitive market?

First time rentals are about 33% of my total rentals.  66% of my total rentals are repeat rentals.like all things successful you pull up your sleeves super size it and just beat the tar out of any competition.. nice work. you get rewarded for doing all those things.

Are you getting quotes to keep it competitive? 

If buyers are financing with 10-20% down and hoping to secure a competitive property, I'll provide them an accurate competitive market analysis (CMA) and have my lender partner (or myself as a licensed NMLS mortgage broker) breakdown the differences in loan terms for an escalated at various price examples. 

I wouldn't do that, they are not bad actors,  these are C properties with heavy value add which is higher risk, and certainly mistakes were made.

Another issue is simply more competition.