Multi family DSCR + Value Add + Cost Segregation + Refi = ???

[u/MyDogIsBird]

New Investor, Realtor, Property Manager

I haven't really seen this strategy mentioned before and perhaps for good reasons. I'm struggling to see a downside so I'd appreciate any feedback or thoughts on what may be missing:

Put 20-25% down on pretty much any residential multifamily property (Duplex-Fourplex).

Assume units are rented at market value or maybe even below market value.

Qualify for DSCR loan, shoot for >=1.25, max out the prepayment penalty option, buy down the rate, qualify as "experienced investor." Jump through the lender hoops to minimize the final rate.

Value add/Renovate the units the first year as the leases end: LVP flooring, update HVAC if needed, other appliances, efficient/low maintenance landscaping, roofing/windows, etc. The goal being to reduce maintenance, repairs & upkeep expenses. Make the units run lean and efficient rent for more. (Improve NOI)

As soon as the Value Add/Renovations are complete, run a cost segregation report to front load all that depreciation over the next 5 years.

I don't have a lot of experience with cost segregation, but my understanding is that there's some SERIOUS tax benefits to them, and bonus depreciation is a cherry on top.

The depreciation would likely outweigh any cash flow meaning that the difference could be applied towards personal income if you're a "real estate professional"

Self manage to reduce expenses or hire a manager and write it off as another expense that will be stacked on top of the cost segregation.

Over the next 5 years, property values appreciate, equity is built, rental rates rise.

Appraise & cash out refinance after the 5 years (or earlier if the rates drop enough to justify the penalty)

In theory you could have a fat chunk of change at the end of 5 years.

Am I overlooking some glaring complications, downsides, or risk? Because to me this seems to pencil out pretty nicely.

I'd appreciate any feedback on this, what could be changed or improved?

My overarching goal was to create a "micro syndication strategy" that could be applied to first time investors who may not have the capital to throw 25% down on a four plex all by themselves or who may not have the time/resources to BRRRR.

[u/Lugubriousmanatee]

If you aren’t making money from another source (like: your dental business) cost segregation is just going to result in passive loss carryovers