Here's an easy answer for you: move into the house and rent out the rooms to generate cashflow.

It's no different than if you were going to move to another city to live, or even better - you had to choose between two cities in different states!

Tenant just moved out, cleaners found they used the wrong type of cleaning product on the stainless steel appliances, causing a permanent discoloration. 

Mortgage rates do not perfectly move with the 10yr T, but its pretty dang close.  

Recently we decided to move forward and submitted our plans to the city.

For emergencies, I could move money from my 401k to an IRA to cover vacancies and capital expenditures.

The contact at the city has been very nice and has said she will work with me as long as the process is moving forward and I'm keeping her updated.

CO landlords can still evict for all of the common grounds for eviction: nonpayment of rent, violation of lease terms, damage to property, disturbing the peace, health and safety violations, illegal activities etc. and can also still evict if they plan to conduct repairs or renovations, property demo or conversion, move in to the unit themselves or have a family member move in, withdraw the property from the rental market, or if the tenant refuses to sign a new lease with reasonable terms. 

I'll need to augment that process moving forward.

I am probably going to move forward with cancelling the contract per the inspection period contingency.