This property is within the family Do you agree that, once you take it on, while acknowledging their discount, their say in what you do with it thereafter, ceases forthwith?

For $20k that cannot be a heated garage unit... with a kitchen and bathroom. 

The discount depends on yield buyer wants.  

I would assume the place is going to need a bit of work but don't shy away from that, dig in and see why it is discounted.  

I called the County and there seem to be not permits for the unfinished large room, bathroom and laundry room on the ground level, but for a new slab and underground plumbing from 2005.We are thinking of buying the house and creating a studio on the ground floor and renting it out to a tenant.We have never dealt with permits, and we would probably hire a licensed contractor for the electricity, plumbing, heating, floors, walls and windows, but would do the rest ourselves. 

I spend 21.6k + 4k + 8.5k = 34k for a property valued at 66k (50% discount).

The house would make a good long term rental at best so you can put in a cheaper kitchen and bathroom from Home Depot rather than expensive custom work.I wouldn't offer more than 225k for the first offer and not surpass 230k on the expected counter offer.

Buy at a discount, rehab the house, rent it out for a monthly residual income and refinance it so you can pull your money back out to do another one?

I know of many homes that are booked 100% of the year in small backwater towns, 30 minutes away from everything simply because it has 9 bedrooms and almost as many bathrooms.

I had this large kitchen painted and re-faced (new doors and drawer fonts) and 2 bathroom vanities too, for about 3k.