Eating an expense like that per turn isn't a big deal.

While I'm incredibly fortunate to be in this situation, it does mean that I would have to forgo my expense-less housing in order to house hack, which is the most feasible investment option for me.So my question is this - does it make more sense to stay where I am & keep saving for as long as possible, or should I purchase a FHA financed property and eat the holding costs for a year until I can rent it out. 

Servicing costs eat up a larger percentage of your monthly payment.

We do not want to spend money on this property and am concerned that the outlay of funds could easily eat up any profits made from the sale of the house. 

Those turnovers, more than normal maintenance requests, and the cost of the occassional eviction eat into the actual real life cash flow you will realize with a property like this and long term will not match the paper numbers that look good and enticing as you evaluate the deal now.Even if you can buy in a lower end B or solid C neighbrohood, it is drastically different than a D property in my experience.

Pros of a condo would be no yard matin, trash etc - Cons would be, HOA fees would eat at your cash flow potentially but as long as you figured that into your numbers youd be good.

I have now paid the collections, but it could take some time (months) for the report to bounce back and me be within good standing.I am single with no debt other than a small amount of credit card debt that is used for bills \ small consumer things (eating out, movies, etc) and is paid off in full every month.

From the way things are going, I project maintenance calls alone would eat up to 30%-40% of gross rental income. 

This means you have a few options.Option 1 - you pay the whole bill yourself and eat the cost of water/sewer for the tenant.Option 2 - you let Guardian continue billing the tenant for their % of the usage. 

Do I eat it or bill the tenant.