I'm going to pull the trigger on your Item B and keep the marketing machine rolling.

You are exactly right, they can't take condition into consideration, their info is outdated, they can't pull sold prices in non-disclosure states and they go off of asking prices, not just sold, so when someone reduces their asking price the neighbors house automatically sinks in value. 

You were definitely fortunate and smart to pull the trigger on that property when you did so congrats on that!

And those that would allow it will likely ask for more in consideration compressing your yield. 

ALWAYS TRY TO DEAL FROM A POSITION OF STRENGTH.Also, the size of the transaction should be a secondary consideration as to an individuals compensation for finding and putting a deal together; the primary Consideration should be the profitability of the deal.   

A lot of others do not take into consideration all of the expenses outside of the down payment.

When you are confident in the true as is value, you will be more confident when it comes time to pull the trigger.

My plan would be to live in one room and rent out the other 4 bdrms for one year, and then move out and use it as an STR.So, my question is, If I was to go the route of FHA, could the Lender take into consideration that I would be renting out the other rooms to help with the monthly debt?

I have seen buildings that took up a considerable amount of the land leaving little for parking and it worked meaning the design layout of the plans was well thought out by a good Architectural engineer.

That is a specific type of creative financing used to acquire a distressed property to avoid triggering the sellers due on sale clause.