As a residential investor you don't want the subject to be zoned commercial, it makes it harder to get low rate financing.

Some of your questions are good but I did write an entire post on this subject for Bigger Pockets that you can find HERE.  

Those areas are "nice" areas but "nice" is subjective based on what you are looking to do with the home.

And they are using metal instead of lumber.Interested in the subject too

It states as follows:"Subject's use is legal non-conforming which means that if the subject is ever destroyed by a fire, it cannot be rebuilt as such."

Just my thoughts on this subject.

IN this market though one thing I would do .. is get pre qualified for sure get your financing all worked out before you engage anyone.Once that is done simply put your offers in looking at good pictures and subject to home inspection.. for rentals there is no need to go look at them if its in the city you live you already know the areas and quality etc.. 

If you're going to sell a property you have no equitable interest in I'd suggest you check out TX laws on the subject first.

Otherwise he said he would be willing to wait the 14 months, in order to not be charged the pre-payment penalty.Does anyone have any tips or advice on a potential subject to structure for this deal.

The Trump Book covers it well.Well written--a worthy read on the subject.