Ideally I would be selling the land to the government, but they  might be willing to sell the building to me.

Ideally, you should consult with both parties.

I know that the method I mentioned is riskier and not in any way ideal, so hopefully, all this due diligence will pay off and the next deal won't have to be like this. 

I made a ton of money doing those but you have to be in for the "long play".

You should never play a game without understanding the rules.

West Philadelphia born and raised, on the play.. you know how it goes.

Final would be completing the application with the City of Redlands or perhaps in some cases San Bernardino County, pay the required fees to related agencies and then play the waiting game for approval and assignment of new APN number. 

For e.g. with a 15% IRR, two scenario will play out differently:Scenario 1: 20/80 straight split - Sponsor/Investor (GP/LP) split: 3/12Scenario 2: 8% preferred return, 20/80 split for returns above 8% - Sponsor/Investor (GP/LP) split: 1.4/13.6As you can see, Scenario 2 is better for the investor BUT long-term if you make your investors happy they will keep coming back to you.

Ideally you bring a trusted GC with you to offer his professional opinion on the matter.

Matt - thanks for the post I would recommend getting an owner occupied purchase loan for the new property you plan to buy ...this will allow you to get best rates available I would also recommend doing a  " cash out " refinance on the  free and clear rental  in order to obtain  a larger amount of  cash / working capital  for your  projected  plans  ......ideally a heloc  program would be best to set up but most lenders / banks wont  allow a heloc on a rental  property so you would likely need to  use a straight 30 yr fixed loan ..adjust the loan amt  so that the  cash flow you end up with is acceptable for you