I'm imagining something more like add a wall, turn a bedroom into a kitchen-living on one side and a formal dining room into a bedroom on the other side, maybe add a half bath in each unit.

What seems most attractive for now seems to be multi-family markets starting out and eventually moving into 5-20 unit properties for growth. 

Note if you go over 4 units, your valuation will be based on NOI and comp rate.  

Four units and below is considered residential property.

For example here in Chicago we have many of these type of neighborhoods that cashflow with solid tenants if buy a 3/4 unit.

You could get into a solid multi-unit or a single-family rental with real cash flow instead of hoping your Katy rental eventually fills.Not saying you should walk just yet, but if leasing drags out longer than expected, would you consider selling and reinvesting somewhere with better returns?

Some of the best advice I got that I will forget was this:"SOME OF THE BEST DEALS, ARE THE ONES YOU DON'T GET"Let that sink in for a while...I remember 4117 s Michigan Ave. here in Chicago, it was an awesome 8 unit full gut condo conversation - I loved the deal and still belileve it would have been a great deal, but would have pinched me so thin I am not sure how I would have survived. 

We put $4,000 into the upper unit.

One other thing to keep in mind is that you have more financing options on 2-4 units than you do on 5+ units.

Not to say you cannot find a deal in many of those states but for a first time investor wanting to be cost efficient it makes little sense to stick to those states.You do have states like Indiana, Ohio, Tenn, Florida, Georgia, Texas that offer higher inventory of home prices even 2-4 unit multifamily that are under $200K.