Keep in mind taxes go up as do rents.

B) pay all the remaining rent but I’ll credit it against the kid’s rent next year.

Assuming property taxes + insurance added don't go above $1,100 total, you could maybe make this work. 

Similarly, a credit report fee upfront is reasonable, but these can often be avoided as well.

When you file your taxes at the end of the year the accountant is going to ask you for your receipts or what and how much you want to write off using deductions.

You might find a local credit union or community bank that will go to 95 -100%.At one point I called 2 different VA Regional Loan Centers regarding this section in the VA lenders handbook:Assumability - The second mortgage should not restrict theVeteran’s ability to sell the property any more thanthe VA first mortgage.

I recommend that you look at Notice of Defaults, Vacants, Tax Liens or Probate. 

It's going to offer Strong economic growth, Appreciation (especially in DFW), Tax advantages (no state income tax), and a Growing population, including infrastructure and amenities. 

Am I setting myself up for a tax nightmare?

For several reasons (property taxes, politics), I would prefer to begin real estate investing somewhere other than locally.