Collection agency turnover the case to attorneys rarely only when judgement is large and landlord is willing to pay heavy attorney fee, which can start at around $3000 for filing garnishment but even that doesn't go anywhere without a valid address of the tenant.

Even though your market might prove expensive, I would exhaust all options before ruling it out.Truth is, you have a unique competitive advantage in your market.  

Even outside the city, many townships have passed legislation to limit short term rentals. 

Such a situation is recoverable if there is enough time for a market recovery and the cash flow is at least break-even (or there is enough reserve cash to cover negative cash flow until it can turn positive). 

Zach called me and told me they were changing my loan because they were going to consider my loan a “new construction” as oppose to an existing structure rehab or even complex rehab (considerations I’ve experience with other lenders).

Or, there is the even easier MLO direction.

Is my only option a HELOC and can I even get one on this property thats rented.

This is not uncommon and actual more typical as it is based on sales price and even though the first appraisal was $130k the new one gets reset based on its recent sale and home prices are not up 10% over a few months.You are going to have a hard time getting a lender to use other comps compared to this home as it recently sold.

One golden rule I follow,if it takes a long time to fix/replace when it breaks, don't buy a cheap one.Imagine, this thing breaks in the middle of your peak season and the people who can come out to rebuild are 2 weeks out....It takes at least a day or two to build something like this even if you are super skilled.

Both loan servicing companies and insurance companies can be such a nightmare to work with even under normal circumstances.