Building lower to median income type apartments the rents per door just do not make it feasible in most cases for new properties.It can be faster and cheaper per sq ft to update and turn an older existing building to improve rents for lower to middle income type renter properties.

The lender told me that I can refinance after 6 months possibly with 1% lower rate.

You could go to your insurance company and request they lower the replacement cost or increase your deductible... if they don't want to write a policy under those conditions, you can look for another company.

Your PMI is also SIGNIFICANTLY lower on this loan program.   

I understand that rural has the possibility to have lower traffic.

My goal is to have a better product at a slightly lower price.

What's better a higher amount of line of credit or a lower interest rate?

My main question is, do property managers typically charge a higher percentage on units that have lower rents?

 $40K Purchase price and $255K Rehab ($295K total) is already over the lower amount.  

If you do it the other way your refinance will be based on a lower value.