I want to explore options to at least recover what I invested with them and it’s substantial.

Appreciation is driven by demand outstripping supply, and cost of new supply. 

Be conservative because demand can go up or down at any time as can the laws -- a good general rule of thumb for STR is to make sure it still makes sense as an LTR.

Now, over a year and a half later, he sent a certified letter last week demanding the security deposit or legal action within 30 days.Please advise. 

Areas with good rental demand or up-and-coming properties could give you more predictable returns.Do you already have a type of property in mind—like single-family homes, or are you considering duplexes, condos, or other types of flips?

I'm not saying "wow, what a deal" or to copy this I'm just saying when compared to SFH or continuing to rent, the 2-4 unit househack is very appealing and thus demand is strong.

I was able to check an old listing and it showed it as being 2 units instead of 3 and one bedroom/bathroom less than what they are claiming.Tomorrow I plan on having my pretty wife knock on a couple doors, hopefully she can talk to someone living there so we don't get something substantially different.

Stable demand, in retiree market - yes, but also in several other segments: professional working remotely, new Americans. 

A 4-bed, 3-bath rambler with a large lot in a high-demand area is bound to attract buyers.

In a way, its not their fault, its just they have become so in demand and they cant hire fast enough to keep up, so the only way to keep growing is via price.