@Marc Shin, Soundproofing is definitely something worth tackling for a short-term rental—it’ll keep your guests happy and help you avoid complaints.

Although whichever option you go with make sure you're also thinking about the long-term property value and what makes the most sense vs trying different angles now that negatively impact future resale/property values down the line. 

What’s the current loan balance and terms with the hard money lender?

I had one short term rental that was granted a permit earlier this year and I have been operating it for months now as an STR.

Like @Collin Hays said, it is being driven more by neighbors tired of poor STR owners not keeping things sorted.We only look for places in vacation areas with a long history of owner driven STRs vs big cities and the like.

Multi-family properties many times provide a better return per square foot than single family, which would be to your advantage as well.As long as you're mindful of the reinvestment requirements and purchase at least as much as you sold and use all of the proceeds, you shouldn't have any issues with this strategy.

The potential impact on property insurance could be catastrophic.

It’s stable cashflow and long term appreciation and tons of accelerated bonus depreciation on taxes. like most anything in real estate it’s a long term play. 

.: Quote from @Jennifer Turner: Has anyone ever sold a property with seller financing then later extended the repayment period or modified the terms of the loan with the buyers?

Lancaster city limits short term rentals to only certain zones of the city so definitely look at the city website for that information.