It is possible the guy just read an online article about this or something like that. 

I mean its easy to get a building permit in small towns in texas , but never encountered this before owning the land.I own several lots in this particular town but they are not issuing any new water meters until their new water well goes online which wont be until January.

If we Just rent one room out, it will cover our mortgage and utilities and still some cash flow. 

I don't care much about cash flow (most of mine are typical) but about that mortgage payment.  

Are there any tax implications or mortgage barriers to building a home under the "second home" plan and then converting it to an investment property shortly after its finished?

There are lenders that will go down to 620 for your middle mortgage FICO credit score with more money down and lenders who will do 15% down for a single family with 720 and above with a 1.2 DSCR ratio (more on that below).

Additional streams of income:1) Have mortgage broker present at open house (and charge them "$5000"%) to pre-approve those who want it (but don't make that a requirement to bid).2) Sell the bidder list to other investorsI have not seen any such ads in my area and I'm wondering if it's because this system is not effective or is it because nobody is utilizing it?

Option 1 allows you to spread your investment across three properties, considerably increasing your rental revenue and accelerating portfolio growth; however, maintaining several mortgages can be difficult, potentially limiting your cash flow, especially if one property is vacant.

I recently took out a HELOC on my primary mortgage and have used this to purchase a home for 32,000 with rehab cost of 150,000 and ARV of 220k.

I don't know of any mortgages where you can put no money down.