They want me to buy and lease to them for a year to rebuild credit and sell back to them.  

We're debating with weather to rebuild or to sell the house as is. 

Tax Records show being taxed at a 359K value and my Fire Policy quote indicated a 525K rebuild cost.

If you're paying about $300K for the properties, spending $250K to rebuild one of them and $30 to renovate the other, you're into this investment for about $600K.If the small house rents for $1100/month and the vacation place rents for $800/week half the year and $1650/week half the year (the middle of your assumptions), and assuming the vacation place is rented full time with an expense ratio of 50%, then your NOI for the two properties together is around $38,500.That puts your cash-on-cash return at about 6%.And that's assuming best case numbers.

I do Complete Rehab, water fire, mold damage restoration, mold inspections, (re-builds) drywall, painting, post construction cleaning, carpet installtion and tearouts, new flooring, property management, I have 11 certifications, 2 are Master Certifications.

We are looking for a 3-4 month rental while they will be rebuilding there home.

I was thinking I could tear them down and rebuild but the current owner stated if I tore them down I could only build two properties on the lot, LA changed zoning or some ordinance years ago, so I am thinking of just rehabbing them and keeping the 3 units.

The Replacement Cost (RC) (cost to rebuild with the same kind and quality) or the Actual Cash Value (ACV) (Replacement Cost - Depreciation). 

Looks like I probably need to rebuild that whole part of the house Also if anyone can recommend a good contractor in Baltimore who would handle that kind of work would appreciate a recommendation!

Just because there is a house there currently does not mean you can rebuild if the structure is removed.