@Kal SeirafiThere are some reasons to creating an LLC, however, you haven't mentioned a valid reason why.You do not need an LLC to separate yourself from your family/family business.Regarding to compliance costs of an LLC in California, you are correct, it can be quite high.

The property has several citations from building code department and not sure if the seller has a certificate of compliance. 

If you don’t know how to screen tenants really well - even with a voucher - and know the best ways to insure lease compliance, you can lose a lot of money with a low income tenant.

The rub/trick/challenge with buying these properties through our custodian is the time requirements to get funds to the auction (this is a sherriff's auction) - as they have compliance requirements that eat up some time for review, and I don't think the 3 hours to get funds will work.I don't think we can buy the asset ourselves with our own funds, and then transfer over, because it would look like a contribution; I'm not 100% sure on this though.For us, we could guarantee the purchase outside the IRA in the event it didn't get through the custodian's compliance review. 

That way, there will also be some built-in assurance that a property is holding it’s value.

I need assurance that person knows what they are doing and my money will be returned to me in full as promised.

There are also plenty of lenders that will not for various reasons that mostly come down to how an organization decides to deal with compliance.  

@DMikal Mitchell If you treat it as your primary residence then you can likely get conventional financing as your primary residence, but I am not sure the compliance around that method as I am not an expert on conventional lending.

Option 3:   send them a 3 day compliance or quit letter and start evicting if they don’t comply. 

This way everyone knows the deal is done by the books and reviewed by compliance, title done correctly etc.