The above comments are good input, but there some banks that will do construction loans based on the merits of the project (as constructed value) rather than your income. you will need to write a formal proposal (but i assume you did that for your previous loan).   

Legislation will always be proposed.

DSCR stands for Debt Service Coverage Ratio, basically it is the lease on the subject property versus the proposed PITI payment.

By getting the word out publicly, we got the city to water down the proposal somewhat.

My one worry in this area is that a law passed that doesn’t allow credit score to be taken into account, and there have been some proposed at the state level (so far nothing has passed).

But I do know the proposal is only sent to a select group of investors they have worked with before. 

. - Risk of STR rules changing: While several cities in the Denver area have legislation in place that allows for STRs, these rules are always subject to change.

I'm going to put together a proposal of different properties and cashflow possibilities.

I can put up the equity myself but I friend of mine has been on my case to get involved in a project so I want to propose something that is fair for both sides5. 

However, the sellers attorney could object on the basis that the base property did appraise, which is the sellers responsibility and the proposed improvements did not bring the needed appraisal amount, which is the buyers responsibility.