Is there any way to file a change of use permit of some sort that would make this business model work? 

You may have to go creative rather than conventional, but depending on where it is and what you are doing, you may be looking at anywhere between 100K-300K in soft costs (permitting, design, architecture, utility hook ups, etc.) and a construction budget of probably 1 Mil to whatever, once again depending on what you are doing and where. 

Include water risers, heater,  laundry,  hose hydrant,  permit costs,  etc.

We also learned that the house had failed or not received many of Baltimore city’s permits and inspections.

Is so - what are the chances to get permits to build and what would you estimate the cost to actually get the land ready to build (water delineation, mitigation etc..)?

our area has put restrictions in place that limit what properties qualify and for those that do qualify only 300 STR permits will be issued.

To answer your question - within the city limits STR's are not permitted, outside the limits there is no regulation.

This particular transaction not only included preparation of loan docs but also  review of subdivisions, deeds, permits, environmental reports, easements etc. 

If it is brand new and there are HVAC and electrical issues, ask for a copy of the final inspection permits from the city. 

If I want to add another one do I start by filing a permit for another septic tank with the city?