In my town, we have what's effectively considered "allowed non-conforming properties" which are exactly like you discussed...multi-unit buildings in single family zones, etc because of grandfathering.

I don't know if this is allowed... but I just bought a 63k house in IL and used Busey Bank.

RT1 allows for up to 2-family properties.

This would allow you to defer the taxes on the sale whether you treat it as your personal residence or an investment property.

If you are trying to wholesale it, don't. 95% chance you'll just end up keeping their home off the market fit 60-90 days, so they can't sell to a real buyer, then the deals falls apart because you find a buyer, your double close doesn't work (no assignments allowed), etc, etc.

Next use the 70% rule to determine your allowable cost basis

Shouldn’t this go to capital contribution allowed and owner withdrawal?

I believe the HUD guidelines are two per bedroom plus one, so for your apartment it would be a total of five allowed to live in it. 

We ended up filing a letter of vacancy with the Los Angeles County Sheriff's Department which allowed them to forcibly remove anyone that we considered to be trespassing on our property. 

I am looking for a lender that is willing to issue a loan that allows the property to be owner by the LLC that is equally owned by both parties.