He wants to add a penalty in the contract that is higher then Minnesota c4d “RULES”By adding this the contract would be void.

Job change, family change, etc happen, so don' t think the 1 year is a hard rule like in your case. 

And someone in my town just applied for a zoning variance to do this exact thing.

As someone else stated, banks will want to see a couple of years of rent roll typically , so do a solid job of estimating the current rents for those units and what additional CAPEX is required, apply a 50% rule and CAP rate for the area and that’s the value.

Is there a way that you could get this property under a long term contract like a lease option or something, get the variance, then apply for conventional financing on the parcel with the home? 

I applied for a mortgage last year and my rate was 3.85.

I have a property that I'm looking at - and interested in the applying the BRRRR strategy. 

Hey @Parker Foard - You can go through practically any conventional lender to apply for the FHA loan.

Send in a new lease contract under new ownership with new rental lease and maybe new rules like no pets, etc. that you want to input.

Would it be like applying for any conventional mortgage but all three partners have to submit info for approval?