Or should I consider the possibility of adding in a small restaurant? 

We are planning to live in one unit and rent the other half out of a duplex, then rinse and repeat this process as many times as possible over the next 5-10 years.

Take it easy i am still a rookie and trying to learn all things possible.

Probate - is good - however the more heirs the greater the possibility of a contested probate. 

With that being said, I am trying to find out if new construction is even possible and what it takes to build a small multifamily in the LA area. 

Yes I understand that possibility, that's why I try to build relationships with the builders that I work with so they know that I'm trying to get them a good deal and I know that I can trust them with any potential contracts.

Yes, it's possible to get an FHA loan with 3.5% down in the city, but your lender is right—there are some tricky hurdles, especially for multi-units.

Through the LLC structure it is possible to take advantage of the existing mortgages modified first at 4,125% 22yers and 1%, yes one percent, for 40 years.

My job every month is to operate with as little $ as possible in banks that pay nothing, getting every dollar possible into my money market accts earning 4%+.

Depending on how long it takes you to save up the amount, you might want to also allow for inflation on that amount for your continued savings.[2]   Read Rich Dad poor dad.[3]   Think about getting a second job - possibly a temporary job - save a 100% of the money.Just my 2 cents.