Each potential buyer has come to their own conclusion that it would be too much hassle and risk to manage in this fashion vs a traditional rental even though the average cap rate in our area has been half that at best.

There are risks relying on a single OTA; too risky for my liking.   

this deal seems like a lot of risk and I am interested to seeing how it turned out.The tenants were a few weeks away from the foreclosure auction.

Begin practicing deal analysis to understand numbers, and consider house hacking as a low-risk way to start.

The loan has a MUCH higher risk for the lender because it isn't secured by real estate.

If your leasing application process is thorough and well thought out, and if your lease agreement has been well drafted by your local attorney and if it includes clauses that permit you/your property manager enough latitude to maneuver and anticipate undesirable tenant behaviors, both actions and inactions, and you have operational processes which align with enforcement of your lease, then you've done all you can do to reduce this inherent risk of an undesirable tenant.  

What is your risk tolerance?

Of course the risks are there that the owner will not renew the lease and start doing it themselves if you are successful.

This jumps out to me as lowest risk, greatest scalability in shortest time, making it most viable to achieve the kind of income sought. 

IF that is the case full stop - yes you are paying for something called insurance but if you have a claim the company has the right to pretty much deny coverage for having the wrong type of policy.Landlord policies are higher cost but for a reason - there is a different and increased level of risk when the house is not owner occupied.Talk with your agent and get all the details sorted out.