@Joshua Berube When you say rent to own are you implying:1) a lease (rent) with a separate option to purchase at a preset price; or2) an instalment where you set the price now and begin purchasing the property.The CRA has a different outlook on each and the tax implications will be different for both you and the vendor.With scenario 1) you really do not have any equity in the property, so you will likely encounter difficulty pulling permits, etc in preparation to demolish and rebuild.  

I have not talked with the city yet but I am wondering if we would need to tear the whole thing down and re-build, or if we could simply enclose it and put a garage door on it?

I'm a little apprehensive since I've never done a construction loan or worked with contractors to essentially rebuild a house.

Sounds like a full gut rehab job or tear down and rebuild with that size budget. 

You could have a property with a purchase price of $1 and an ARV of $125K and it would still not be a good deal because it was a meth lab that blew up and will cost $150K to rebuild it, but it will never be worth that much because it's in a crappy area.Also, I don't like the approach of using percentages when calculating costs or profit. 

The short answer is: no, fire damage rebuild is not the same as a standard gut rehab. 

Trying to rebuild (or  for that matter, undertake ANY significant renovation) while occupied will likely cost 30% more and take significant additional time.Ice is more or less straightforward...add heat!

Also any thoughts on rebuild vs sale of the lot.

-Major reconstruction, or possible demolition on the duplex to rebuild another duplex or possible triplex. 2.

I believe the owners plan to rebuild it though.It's very encouraging to hear that you started with land at such a young age, and have come so far from that point.