A very complex area subject to interpretation.  

If she finishes the window without a permit, can she still be subject to a fine in the future?

You can finance the purchase, but you must use a non-recourse loan and the rent proceeds from the financed portion of the property will be subject to UBIT tax. 

If someone “gifts” an asset to you, and you “gift” cash to them, it is a fraudulent transaction and subject to being “unwound” by the IRS.

@Naman ShahJust because you register an LLC in a state without an income tax doesn't mean that the income generated within the LLC will not be subject to income tax.State taxation will depend on the state where the member lives and where the business is conducted.Also be mindful that you may be subject to California's $800 fee regardless of where the LLC is created aslong as you are a managing member.

There are countless ways that you even broaching this subject with them can get you in warm water that can quickly become hot. 

Also set up some keywords that revolve around that subject, and you'll be alerted when people mention it.  

@Chris Iley without consistent income you wouldn't qualify for conventional financing but there are 30 yr products available that use the subject property to help you qualify.

@Nathan G. outlined an excellent system for what the process should look like.

Any Suggestions as to where I could find a template or outline?