Basement flooded mid-BRRRR and I'm unsure what to do

[Max Martin]

Hey everyone. I'm in a really tough spot right now and could use any and all advice/help people are willing to give.

Property Details:

SFR 3bed/1bath 1,300 sq ft

East Indy (east of Post, west of St. German Church, near Washington - Warren Township)

Backstory: 

I bought a SFR in Indianapolis in November through a wholesaler and had them do a rent-ready rehab (I used the wholesaler because I didn't have a PM that I could count on to do the work). The cost of this rehab was about $12k but I budgeted $20k because I knew there would differences in my (new) PM's definition of what "rent-ready" means. The new PM's rehab SOW came in around $10k (so only slightly off-budget so far, which is fine).

Fast forward to yesterday, when I woke up to a call from my new PM saying that there is 4' (yes, FEET) of water in my basement that accumulated between 2/7 and now (about 1 week). They sent a remediation team to pump the water out and dry it out with heaters. Unfortunately, the furnace, water heater, and water softener are all in the basement so there is likely damage to those units. We are also unsure of the cause of the water, whether it's from the ground, a bursted pipe, or some other system failure. I had a new sump pump installed less than 1 month ago. My $5k deductible insurance covers special form but does not cover flooding.

What I need advice/help with:

1) What should my immediate next steps be (outside of writing down EVERYTHING that has happened)?

2) What should I be aware of when assessing damage and filing an insurance claim?

3) What sort of costs should I expect for damages?

4) Will this affect my home valuation during refinancing?

5) Should/can I take legal action against the previous owner?

I'm doing my best to chalk this up as tuition for learnings in real estate and am trying not to let it stop me, but it's a pretty huge blow to my plan of building out a rental portfolio. 

"Everyone has a plan until they get punched in the mouth" ~Mike Tyson

[Mike D'Arrigo]

@Max Martin Sorry to hear about this. Flooded basements is such a common problem in some midwest markets that I did a whole podcast on the subject. 99% of water intrusion is due to improper drainage and soil grading and can be mitigated by having properly functioning gutters and downspouts and grading the soil away from the foundation. These are very simple, inexpensive solutions but are often overlooked. The extent of the water that you have would lead me to believe that it's due to something more however. Once you get the water pumped out you'll be better able to see the source. Unfortunately, your furnace and water heater may be a loss. I'm curious to know though the sump pump malfunctioned or just couldn't keep up. I doubt that you can take any legal action against the previous owner unless you can prove that they were aware of an existing condition. Did they complete are Sellers Residential Real Estate Disclosure that is required by law? If you bought it through a wholesaler, they wouldn't know if there was an existing problem.