My only concern is 'opportunity cost' and alternatives to high asset valuations created by recent appreciation.

Alternatively, if they stick with 1k houses but hire more competent rehabbers, it'll cost Zillow a lot more (b/c why would a successful upper tier rehabber sell out and work for Zillow?)

The other alternative in that range would be muni bonds.FYI...people have been predicting a recession on these forums for the past five years.

Do you have financing and/or cash in place with the ability to close on the property on time if you can't find an alternative buyer?

Alternatively I could buy two cash flowing properties (say $50k each that cash flow $500/month) in a cheap area and use that income to supplement my rent.

For a licensed sales person with access to FMLS does alternative sources such as ListSource bring value?

Alternatively you can look for a seller financed house that will fit the bill, local investors sell on financing often here, you just need to expand your network.

The more knowledge you have about an investment alternative, the less diversity you need (and vice versa). 

We've sprawled our way to all kinds of infrastructure, environmental, and financial problems and if we don't frontier an alternative, my children and grandchildren will be left picking up the pieces.

You, in turn, have the right to seek alternate living arrangements.