This is a 4-bedroom, 2.5-bathroom single family house.

What the city housing clerk is telling me is that there was a water leak from behind the sink pedestal on the second floor bathroom that has been running for a week. 

You can get some estimates from contractors for what they charge for big ticket items like to renovate a bathroom, renovate a kitchen, replace the furnace, replace the roof, etc.All wholesale deals should have free and clear title and you should be able to see the sales agreement before submitting the earnest money deposit.

Doing a short term rental in a separated area that has its own designated, kitchenette and bathroom, would likely give you better returns and less headache.

The 4 guests smoked marijuana in the house (strong smell), broke a window blind and a picture, put a hole in the bathroom wall, chipped an end table and worst of all vomited on the couch and front porch.

This could be adding a second bathroom, finishing basements, or updating kitchens.  

This followed after a 2X overflow of a tenant on a first floor that flooded his bathroom using a portable washing machine and flooded the basement apartment.

Meaning you may be able to do some cosmetic or smaller renovations like bathrooms or kitchens in your duplex when the tenants turn over and those smaller investments can demand higher rents, so in the longterm you may have more cashflow from the duplex to help fund a future investment in another property while you wait for market conditions to change.

I've already renovated one of the bathrooms, and I’m planning to paint the interior, update the kitchen cabinets, possibly sand the wood floors, build a fence is a corner lot and increase the rent for the room since my tenant is currently renting the entire 3-bedroom, 2-bathroom house for $800 a month.

Also consider adding higher end finishes in the bathroom(s).