First, even an STR that isn't rental arbitrage may in some cases be reported on a Schedule C rather than a Schedule E depending on whether you provide "substantial service".In the case of rental arbitrage, I believe the best and arguably only acceptable choice is Schedule C. 

:Class A Properties:Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.Vacancy Est: Historically 10%, 5% the more recent norm.Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.Class B Properties:Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 yearsClass C Properties:Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation.

It more depends on job.

@Dominic Richardson It can definitely work depending on the numbers and the market.

Many of these look attractive for the first 5 years of the note but then will have a very possible negative outcome depending on interest rates as of 5 years out.

To evaluate the standing and dependability of various lenders, look for reviews on the internet.

The practicality of doing this on your site varies depending on how encapsulated the site is by the floodplain and if there is enough space to build it up with dirt, etc. 

But this obviously depends on the lender 

I also have a partner with a full time job and great credit score as well, so maybe my best option would be to include him and have him apply for the mortgage.

Depending on the type of "group home" (drug/alcohol rehab, handicapped, mental illness, elderly, etc.) you have other laws to make sure you comply with, and great point by David D Painter re insurance.