Interestingly, I did all of the property searches myself and the agent took us (my wife and I) to the buildings we found online.

What ever marketing you use, guess what, people WILL go online to check you out and they will find the top 3 sites on google in your market.

I see that you've run plenty of online advertising, but nothing has worked out for you so far.

He somehow found me online at another real estate investing network site from what he told me.

For the last 6 months I've been self employed with my online company.I finally have some real money and I really, REALLY want to finally pull the god damn trigger.I have no friends with real estate and seems like anyone ive approached locally doesn't want their territory stepped on, only interested in selling their (cash flowing at least) flip. 

My whole online training and coaching business is about helping aspiring Real Estate Entrepreneurs get unstuck, out of neutral, and past GO. 

Try searching on Meetup online as well. 

Is it acceptable practice locally to bill tenants for utilities?  

I'm very fresh to the whole real estate world in practice, I'm trying to gain some experience of any kind.

IMO if you chose #1 now you can always choose options #2 or #4 six months(maybe a year) down the road, pull all your 60K back out plus what ever appreciation you have(if any) and move forward. to me in option #3 you said paying interest bothers you and option 1 solves that problem, gives you practice with a new tenant so if they don't pay or u have problems you don't have 2 bills( your old mortgage and your new mortgage) to manage along with the stress(of kicking out your friend and finding a new tenant) just the one mortgage that your fiance already has within his budget(because your 60K didnt' factor into bank financing so you found a home to move to that was within his budget alone(even more safety net) or at least lower mortgage payment and house than if you had 60K to use to buy-down another home. but i digress....Option #1 is less stress , less interest payments,and less of your money with 2 options left over at a later date. like joe said your 60K is safely locked away in the home(minus depreciation) which you can always pull out later on when you are more risk-prove.Still your choice but that my point of view.Good luck!