But now my market has dried up and there’s only very expensive single family homes for sale that don’t work as rental properties because they have a negative monthly cash flow of starting at -$400 and getting worse from there.

It does not matter what the pictures show on the outside of the stem wall.

Contractor brought up the important point that just covering it up with cement board and trimming out remaining upper 2’ section means that condensation from cold weather outside that would naturally form on the inside of the covered up window section would just run down to the bottom ledge inside the covered up area, and even if the ledge is waterproofed, the water from condensation will just sit there for extended periods since there would be no airflow to dry it properly.

I think the DSCR route would be my option due to high DRI. 

Resident went into crawl space and says it is dry and does not see mold.

Not saying don't look for data, but I am saying, it's more in the comparison of successful properties, not in the cold dry numbers.

Like a lot of things real estate over the last few years, there are a lot of people that leaped in without any real knowledge or plan, and they are not doing well.You are also right that a well located property with all the required work needed to differentiate yourself will yield a solid return.There are certainly headwinds that stem from the popularity of these STRs: as you note, more jurisdictions are changing their laws and/or requiring more from hosts.  

My question mostly stems from from those research gaps I currently have. 

Seems cut and dry, right?

Regardless they are on the hook for the lease its pretty cut and dry.