Are they trust worthy?

The problem I am facing is I don’t have income and no collateral so I can’t finance my down payment  with lenders/banks. 

Ask for one year history of the rent payments from her family's rental property.

And yes, moving out and purchasing another property to house hack (and use the bathroom renovation budget for a down payment) is an option for me!

A family member agreed to finance the down payment, but I ran into a snag obtaining conventional financing so I ended up borrowing the entire purchase price from the private lender.

@Tyler Kowalczik- thanks for the post ....1) get pre approved for a nypotehtical  scenario  so that  you  can make sure you can get  financing and also  so you  can  become familar with the process  2)  you will need a  down payment of  15% or more   3) once you know what a  possible  realistic  loan payment  looks like - do your  reserach on  what  rental incomes  are  realistic  and  this should help with your  decsion making .....the prices are  high in LV ...Port angeles  or  P townsend  might be  better ......consider  Kitsap county  ( although its  been  increasing in value )

My PM said that I have to trust the tenant's words and believe these people are her families. 

Was the house paid off or did you take over payments? 

Downpayment, closing costs, holding costs (loan payment, utilities, insurance), money to front the contractor to get started (you get back after the rehab is done). 

Utilities can be a lot, so this needs to be split by tenants.Three, build your trust with tenants.