True, you can get into a 2-4 units for less, just like a sfr conventional loan.I like 5+ commercial loans even though the LTV is higher, the DSCR demonstrates the property IS self-sufficent (aka cash flows and that was my goal in REI). 

However, if you adopt the practice I have described herein, you 1) reduce the odds because you remove any grounds they may have, (deadbeats know the system, believe me) and 2) if you do end up in court, you have a paper trail that demonstrates you complied with the lease, addressed any concern they had in a timely fashion to the extent the lease obligated you, and that they were fully satisfied with everything you did.  

It sounds like you can demonstrate that she did have the intent to hold for rental/investment purposes but that the CC&R and/or HOA rules do not permit the rental of the unit, which you can easily prove to an auditor.

As far as seeing rental income, if you own the house cash and don't depend on the rental income as part of your application income, it really won't matter if you show it or not, and there are different rules when they will consider it income; my bank goes from your tax return, so if you don't demonstrate rental income on your federal 1040 it doesn't exist. 

A short-term hold can make it difficult to argue that you did have the intent to hold, but if you could demonstrate that you did in fact have the intent to hold for rental or investment purposes but that you got an offer out of the blue that you could not say no to you would qualify for 1031 Exchange treatment. 

"To demonstrate the likelihood that a consistent level of income will continue to be received for borrowers with less predictable sources of income, the lender must obtain information about prior earnings.

My position is that having clear expectations demonstrates that I want to maintain a clean and respectful environment, and that online applications weed out the lower functioning tenants. 

From my side of the table, if I ever get audited, I want to have a paper trail (other than my spreadsheet) that demonstrates payment. 

We just did the research on these new HUD guidelines the other day and here's a snippet of the larger article:What HUD’s new Guidance means for housing providers:Arrests records are not a valid reason to deny a rental applicant housing.Convicted criminals may be denied housing if the reason for their convictions clearly demonstrates that the safety of your residents and/or property are at risk.Blanket terms in your screening criteria that say “Any criminal convictions will be denied” are now considered discriminatory and in violation of the Fair Housing Act.The new Guidance does not make criminals a protected class, but rather establishes requirements to clearly prove why you are denying an applicant based on a criminal conviction.Remember that a housing provider violates the Fair Housing Act when the provider’s policy or practice has an unjustified discriminatory effect, even when the provider had no intent to discriminate.source and full article

However, you may be able to sell your % to the other investors as one sale and go forward with a 1031... if the corporate structure can handle it appropriately, if you can say/demonstrate that your intent when you went into the deal was to hold the property for productive use and now that the groups direction has changed you are selling your portion to purchase other property to be held for investment.And if the improvements to the property would not cross the threshhold of "creating inventory" and could be classified as ensuring best and highest use.