In my backyard is a single car garage that was built in 1959 via permit after the construction of the house in 1924.

Also, at least in Florida we have to obtain a special permit for an RV Park/Mobile Home Community.

@Eric Ippolito  first it takes Capital to fund the due diligence process and bring the project to shovel ready but the following steps are free and are done by you to determine feasibility.Check with the city or county to determine what is required for all approvals including site plan and building permits, proffers, water/sewer tap fees, bonding requirements, inspections and CO process and time frame for all approvals.You also need to check with the utility companies and get an idea of availability and cost estimates from them for water, sewer, power, gas, cable, installation and connection requirements, tap fees, hookup charges, transformer location and relocation, power line and power pole relocation issues.Check to see if you have to install any manholes,fire hydrants, curb, gutter, sidewalks, street signs, street lighting any specific street design or access requirements,.Check DOT requirements for access, stop lights and permits, traffic studiesDWQ requirements for permits, permit fees, time framesThis is a broad overview of the process and your civil engineer can handle all of this but it's good for you to know exactly what's required.

The fourth unit is probably not permitted, hence why the owner has to vacate the unit for the inspections.

If you want a 'as you go' type of a payment, then break down the tasks to something like, depending on your tasks:demo complete XX$rough electrical and plumbing signed off by building inspector XX$drywall complete, building inspector sign off  XX$paint complete, cabinets installed, BI sign off  XX$final plumbing /electrical BI sign off  XX$final BI sign off on entire project, permit closed  XX$punch list complete, final payment, if done by XX date, $ XX bonus.Just FYI, I work a lot with a specific GC and actually pay him his cost plus 15%, but I also know that they get a good price, not milking it to get more off the 15%. 

The seller is willing to finance with $260k down with an interest only loan type at 5% interest.I'm a newcomer to investing so I dont have any other properties or any major capital saved up to drop 260k as a down payment.

Another way is to see in your area where the big developers are asking for development permits.

CASE # 222-163563Is it legal permitted? 

If you want a phone number, I would look for Building Permits that have been applied for and see if the owner's contact info is on any of them.

That includes zoning, building, permits, sales tax, licensing, and more.