Maybe someone else can chime in on rentals.

And yes the local meet ups are a great way to meet agents and anyone else who can help you along your way

Has anyone else run into this problem and/or solved it?

What else would you  recommend?

To summarize a response to your questions(1) Would only pay off student debt if interest rates are >7.5%... else would save money for investment purposes(2) First investment.. duplex or triplex would get you the most income (paying most if not all of your PITI payments). 

Above all else though I love people and real estate. 

For you it might be.165k at 4.5 over 20 years is 1044/monthThat leaves you 556/ month for operating expenses.Insurance and taxes will be around 2k/year is my very vague guess, so 167/month.That leaves 389/month for everything else. 

So they are refusing to negotiate any further and are wanting me to cancel the contract and they will sell to someone else.

If HCAD has it listed as residential, then it's currently residential but there is no reason it couldn't be converted to something else provided the deed restrictions don't disallow it. 

trust me, if it's easy for me it's easy for anyone else who wants to do this.