Buyer's agency agreements were already required here before, our regulatory agency just went from strongly recommending them be signed right away but not really requiring them until writing a contract to 100% requiring them to be signed prior to showings.

I highly recommend an ACH service.

How would people recommend approaching the initial set up of that property with an eventual exit (via sale or hand-off to PM/operator) in mind? 

I recommend having an attorney draft one that can be short.

If it is unclear as to whether you have met the standards of the Illinois Code, it is recommended you speak with an attorney for an explanation of Landlord/Tenant Law.

I also liked that they are US based as I had issues with my bank with the Finland based Hostaway.Finally, I highly recommend PriceLabs.

Can anyone recommend software which would accept monthly payments (from me to seller) and create proper 1099 forms for tax purposes at year end? 

Pricing has changed but J Scott's one of the smartest guys around and is one of the books I always feel comfortable recommending.

I do see your point on the security deposit.

If the complaint is legit, the offender will be cited and you can use that as evidence for a violation letter, termination, or eviction.Second, if the offense is real, I recommend starting with a written warning.