C class neighborhood and it's doing very well for me so far.  

Do an internet search and get a rough idea of what the income and family profiles are for your immediate neighborhood.Do an internet search and get a rough idea of how big the rental market is in your immediate neighborhood. .        

Through the process, pre-approvals, agents, searching, etc.. became clear that we'd be taking on additional expenses with a big mortgage to get our dream house (pool, staircase, yada yada...)

This is how I would tackle searching out for a place or places you want to invest. 

Easy enough.Then the neighborhood started neighborhood-ing.Squatters.

Specifically:- Estimating cash flow- Evaluating long-term appreciation potential- Understanding neighborhood demographics- Estimating renovation costsI’m working on a tool where:- You paste a Zillow link.The system uses AI to:- Analyze cash flow potential via Rentometer rents- Predict appreciation based on historical trends- Break down local demographic dataGoal: Automate the time-consuming parts of deal analysis and help investors screen properties faster. 

I'm expecting longer than 2 years to re-balance the neighborhoods inventory.

You're going to run into this in most of the major STR markets because within the last 2 years we have seen a massive spike in available inventory.In order to compete with the competition now, hosts/owners/operators need to step up their game and be willing to invest in good quality furniture, memory foam mattresses, high quality linens, professional seasonal photography, etc.In the high desert, most visitors are looking for peace, quiet, privacy, and amazing scenery so this means stay away from purchasing homes in residential neighborhoods with neighbors on all sides.

I like @Paul De Luca recommendation for option 2 because of the DTI situation and your overall goal of buying the next property.Either way, I don't think you can go wrong with either of those awesome Chicago neighborhoods, unless one is much closer or further away to the blue line - that could really help with your appreciation and long-term value!

We own a property in Midtown, in the in the Valentine neighborhood that has been a struggle to sell.