Any local regulations I need to be aware of?

If there's an existing lease, it's binding.

The city already has a strict permitting system in place for Vacation rentals, and it is quite possible they will further attempt to regulate vacation rentals. 

If you can buy an existing duplex for $100k, but it will cost $200k  to buy the lot and build a duplex, then it makes no sense to build a new one and therefore the lot is worth very little.

And it is those results that lead to 65+% of our annual property sales to go to existing clients building their existing portfolios. 

However, when I read over some of Texas law I see this:1) S.A.F.E Act - Seller is required to be licensed (Residential Mortgage Loan Origination (RMLO) license from the Texas Department of Savings and Mortgage Lending when property is not seller's homestead and/or sale is not to family member.2) Also, I read that after 2005 Texas regulation changes - owner financing deal is recorded with county and a trustee has the deed instead of seller. 

Partnership opportunities that exist?

Fortunately the first-in-time ordinance regulating the screening process was struck down by the courts though it is still a good general principle to offer tenancy to the first qualified tenant who completes the application process.   

Lending is much more regulated than wholeselling due to the amount of predatory lending that was occurring pre-bubble. 

If you can't find the leak after confirming it exists, call in a good plumber.