One idea I had was to talk with the bank to see if they'd accept a short-sale around $80,000 and then pay her a $10,000 fee or bonus but wasn't sure if this would be legal.

Round Rock and Leander are great areas with rapid growth and great rental opportunity if you are looking to buy and hold.

Just to clarify, because typically equity has a different meaning 'round these parts.The biggest difference is that in real estate we have control.

He insists I don’t owe him interest which is a nice bonus.

I have always been in the market of helping others, so I know this is a bonus that I can add to my "resume." 

Is this an added bonus or makes the deal less desirable?

Likewise, I strongly suspect offering 2% above X% will incentivize agents to show.A better way to incentivize agents is to offer a bonus. 

It was bank owned, so most of the negotiations was in the form of finding financing that would fit our round peg in their square hole How did you finance this deal?

You can then use the cash value as a collateral for a bank loan at prime rate that you will reinvest making your money work at two places at the same time, expensing the interest of the loan and as a bonus getting a life insurance to protect your family if something happened to you.

So moving to more units or bigger is a classic 1031 strategy.You actually had another bonus that you'll get to take advantage of.