Hopefully you are being guided by a capable CPA and attorney.

despite the extra admin work, I recommend putting a cap on water/sewer and billing the diff to the tenant.  

Investors looking even with a new build in a smaller market tend to be local and assess more risk so want a cap rate premium.

Make ready expenses are some of the largest expenses outside of a cap-ex, so if you can do a smaller rent increase this year and not have to do a make-ready for a little longer then I personally think that's a win/win for everyone. 

I'm at a cap rate of 8% and with only 3.5%down FHA.

The 10% discount HD gives military has a cap on it.

That would be a cap rate created by a member of the market.   

You can't just take operating expenses out to manipulate a cap rate!  

Remember what the function of a CAP rate is: to provide a way to do apples to apples comparison on rate of investment return between different asset classes. 

First, If I use the 50% expense ratio I get a cap rate of about 8.1%.