Was it hard to obtain a permit?

It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.

Far too many first time investors obtain less than ideal financing terms, just for the ability to vest in a LLC.

@Stephen Kehoe - my worry is that after I house hack for a year by living in the basement and renting the upper floors, an inspector will need to review the property to obtain a rental license as I will no longer be living there and is considered a rental SF.

This way you can easily refinance in a short time frame after closing and capture the equity you are obtaining from getting a property at such a quality price. 

While there are some rather light legal and tax aspects, buying or selling a note is not rocket science.The hard part is selecting the right note and obtaining the right or an acceptable price.

What would be my best path going forward in the short term to obtain funding?

The way I see it is 25% down out of state means $100k in down payment/closing cost to obtain turnkey property that gains equity similar to an IRA or 5% down managing a renovation in the property your living in which in turn pays yourself from the equity gains which allows you to get to multiple house hacks very fast. 

This tells me two things: Obtaining a variance will be more difficult because there are already policy considerations in place intended to reduce density & (2) There is clearly an over supply of rental units in this area otherwise the overlay would not exist. 

Obtaining the V.A. loan is going to allow you to put more liquid cash toward renovations.