South Philadelphia's base zoning districts are not very accommodating either.

The first people that lose their money in a downturn are those that are lending at insanely high LTVs without adequate underwriting experience including determining if the borrower's qualifications based on credit/character, capacity, and collateral.  

Since construction loans fund their draws  based on completed  work, having the additional capital to advance the construction progress is helpful.

My goal is to at least match my current monthly expense of $3k (After all units are rented) while aiming for long-term appreciation.

We intend to give them the option of moving out or new contract (increased rent to match the market).

You won’t end up in tax court but if you do, you would win based on everything you cited about material participation as long as you have a time and activity log that shows your tasks and provide a guest list that shows the number of nights your guests stay (easily found on the various platforms). 

I expect if the stock market truly crashed long term the government would bail out 401Ks before STR investors based on the government's previous actions.

Instead, a lender will want to see that the property currently brings in (or has the potential to based on market rents) enough to cover the monthly principal, interest, taxes, insurance and HOA (if applicable).

Pick the kind of place to buy, like houses, buildings with many homes, or places for businesses, based on what you want, how much you can spend, and how much risk you can handle.

Try asset based lending, portfolio loans, where all they care about is the property.