Now you need to figure out how to find deals and pay for them.

Her sister has agreed to us paying out her portion of the equity and having us use this as a rental. 

Matthew,Yes, you would want to use those funds and do a 1031 exchange to avoid paying taxes on the cash or (boot) from the sale of the home. 

Negatives are that there is an additional cost for me and if the tenant doesn't pay the water bill, i would end up with a potentially large bill at some point. 

Your monthly mortgage will be about 2,000, which won't pay the bills as a long term rental.

My understanding is that it is me paying out of pocket what the previous owner has put into the house.

If you simply want to "get involved in it" I would suggest seeking out local, licensed property managers who are hiring.

Or you can DIY from Facebook marketplace, Craigslist, thrift stores and furniture stores.But is there anyone you can pay to help you DIY, to take advantage of local offerings and your own labor, while still not doing it wholly on your own?

If our agent pays him via checks and bills us at closing, does this have any +ve or -ve impact on the taxes? 

Mortgage payment is 867 but I pay 1k a month on that and 500 on utilities so my total burden is 2100 with tax during the seven months it’s a vacation rental it does 3-4k which means that I’m breaking even year round as it is.