Pressure testing the cooling system is the way to find where it's leaking. You will need to remove the oil pan, valve cover and side covers so you can see where the leak is coming from. You said that you have water in the cooling system, you may want to add some antifreeze to color the coolant, makes it easier to spot leaks. If I remember correctly, there are expansion plugs under the rocker arms on top of the cylinder head, I have seen them leak.
Retorquing the cylinder head after sitting overnight is recommend by John Deere on some of their engines. I have tested this procedure and it does work. Sure makes it much easier to retorque some bolts that are tough to get to with the rocker arm shaft is in place. Happy hunting..