This way, in the event of regulations, you are covering yourself from potential large losses/the property no longer being sustainable. 

This is upside down, how can lenders sustain this?

This area has sustained 2 major wildfires in the last decade or so, so we're rebuilding lost inventory at a rapid rate.

I currently own a small business and it's becoming self-sustaining so I'm looking to become a full-time investor. 

Likely go up as taxes increase and it'll be hard to sustain the current operating expenses as the owners have owned this for decades. 

I feel like one or two flips is all i would need to have cash flow necessary to be self sustaining.

With that said since you are trying again, I would recommend Keller Williams (not because I am there), they have amazing training and lots of great tools to help you grow a sustainable and predictable business.

I would defiantly sacrafice todays cash flow for some upward movement in values and sustainability in the tenant base.. just personal opinion of course..

As a new investor saving for my first buy and hold purchase, I'm concerned that my analysis is assuming a rental rate that is not sustainable.

Will people always want to live here probably but insanely high prices are sustained by a variety of factors including FDI investment, the best jobs being here, older folks who move to the city because they sold their own home and want to live here, etc.