It also now has modest cash flow for its equity (high cash flow compared to most properties).I am skeptical of your cash flow estimate.  

You just got pre-approved and are ready to make your first investment in a rental property.You are worried about rates and margins on your investment.If you can buy a value-add duplex near you, ideally with tenants in place, I would look at doing that or live in one side of the duplex and put less down.That way, you start with cashflow and can prepare to improve the property and increase rents when a tenant moves and you should always have a rent check coming in.If you buy it well enough, you can refinance the property and pull out a home equity line of credit and go buy the next duplex in a short period of time.If you cannot find that near you, there are several markets in Michigan where you can and we have experienced property manager partners who can handle the rehab and manage the property well.Top Your Success!

Three workable paths: 1) Tenant hauls to the dump with a required cadence, photo proof, and a fee if trash accumulates. 2) Landlord provides monthly curbside service to a can at the road, plus a small shed or bear‑box halfway down for staging; add a modest rent bump to cover it. 3) Hybrid: landlord schedules a twice‑monthly haul by a local hauler; tenant brings bags to a designated bin area near the house.

Situation:We have a home we used to live in.

Have a history with the area they invest in, either having lived there before or having family members or close friends living there now.

Even if appreciation is modest, consistent rent plus tax benefits can outpace what a volatile market offers, especially if you value peace of mind in a downturn.

It has cash flow of a $3k/month (modest for the equity).  

Quote from @Andrew Steffens: STR IMO is great for people- Who want to own a second (or third +) home in a desirable place where they can get personal use out of- Investors expecting modest returns but can invest in better neighborhoods leading to hopefully higher appreciation.- High end luxury/unique property owners with higher than average returns.Otherwise you are likely experiencing similar results to what you mentioned, of course depending on the market. 

Quote from @John Morgan: I’ve got 3 co-living properties in Fort Worth and the city is trying to shut down all co-living investment properties.

How do keep them out of the mess a Live-in flip becomes and keep them safe?