My question centers around why and how could that be  (not that it can’t be… but can you change your circumstances while still keeping the rentals?)

I also don't know all your circumstances ... but I provide the source for you to dig into it deeper down below.  

There are very special circumstances where a lender will count projected rents by the room.

It is the only option, save for some highly unusual circumstances.

However, it appears that they are neglecting the maintenance of the property.

(Depending on deal , state , circumstance ) Consider actually purchasing the property and then selling days or weeks later instead of a double close if you run into that issue.

The various "what-if" on neglect, just like with a tenant it's violation of contract terms and you take the applicable legal actions. 

That is a very unique situation that no other contractor would ever offer you, so IMO, given your circumstances (assuming you are able and qualified financially and won’t be house poor) I would take your buddy up on the multi construction seminar.

Do STR and LTR the question is the order based on your life circumstances at the time.

Bad policies that may allow SOME investors to make more money because of short supply neglects the following:- the marginal increases in the net worth of some investors is far outweighed by the overall losses to other investors and the community because of lost opportunity, etc in that market.Your last comment is all that really matters - the policies that we all seem to agree are bad -have the complete opposite effect of the intent (but it is not a good basis for an investment strategy)Frankly I am not really sure what your point is.