I understand it’s not an appreciating market which is fine because my goal is cash flow.

The challenges will be the recent tightening of qualification standards, but if you've got some reserves, proof of decent income, and a credit score above 700, you should be fine. 

I'm just not sure how serious of an offense this is, is it a fine, warning or do I lose my hotel license right away?

Just a good commercial insurance policy covering your rentals, and liability should be fine.

I am aiming at single family houses and as long as I get $500 (after all expenses) extra per house, I hope that should be fine.

I have worked on this daily for nearly 3 years, and have shared with friends and family to fine tune over the last year or so.

My client is fine with either option but don't want to demo the house if we'd be obligated to only build a business and not a residential home.

Sure, it would have done a lot better if the market hadn't crashed in between, but it did perfectly fine for me.

They'll still do perfectly fine on a total return basis in the long run, but may not get the kind of cash on cash return that a lot of people on this forum expect.

I definitely didn’t plan on purchasing a roof within my 1st 4 months of owning the home... prior to purchasing, I had an inspection done and the inspector noted that the roof was fine for now and that it had a few more years of life left.