The house needs a bit of updating, but I have been fantasizing about the idea of purchasing the property from them on a land contract, fixing it up, and then reselling it on a land contract. 

The house is vacant, which is indicative of a "problem" that the owner needs to fix now.

You will have to pay taxes on entire 30k, even if you use entire amount to fix up rental. 

Rental  1) Value 190 000 with a mortgage of 75 00  at 4.8%  15 years fixed  (with inlaws as co-signer)Rental 2) Value 175 000 with a mortgage of 71 00 at 4.525% 30 years fixedRental 3) Value 150 000 on a land contract  ballon in 3 years at 4.5%  the ballon is 110 000our primary house is value to 285 000 with a mortgage of 160 000 at 4% on a 30 year fixedMy question is what should we do with the "Rental 3"?

You could look for a friend or family member to put up some cash and make them a partner or offer them a fixed % return on their money for set period of time. 

I thought since I had already used the VA loan I was out of luck to use it again, that's why when I discovered the FHA loan it would help fix my low money down issue.

My wife and I are eager to take a leap into fix and flip.

I'll toss you a vote if you get it right.The sink clogged up and they just left crap in it, probably put more in, and didnt tell you but expected it to be fixed. 

My friends that have gone the VA loan route have all complained about how much of a pain it was because of the stupid little stuff they wanted fixed, so that will definitely help you.

Giving half of everything might seem like a lot until you realize 50% of a lot is more than 0% of nearly nothing.Always hang your license somewhere people know and respect then find someone in the office that will take you under their wing for a few deals.