Flip or Flopped! First deal underway - Looking for feedback

[Rebecca Stephens]

I got really excited about diving in to my first flip project and didn't have enough money to start from scratch. I signed an agreement 4 weeks ago to loan money to and help manage on-site to complete the rehab for an overwhelmed investor I met through my REIA in exchange for a full loan repayment and 30% of the deal's profit. Hands-on education.

Property: 3 BR / 1 BA

ARV: $250,000 if done well / right. Neighbor property (same model) with extra half a bath is under contract for $270k.

Investor 1 at outset: In it for $200,000 to date and has no more money or time to invest. Hasn't accomplished anything significant on the flip in months. Has significant emotional upset with regards to this property and a series of previous contractors stealing money and doing poor work.

Potential Total Profit at outset: $25,000 - anything I loan to investor 1's entity (after 10% sale & closing costs & concessions)

4 weeks later / progress to date: I've spent/loaned $10,000 and worked 100 hours at the property to check items off what's needed before we can list the property on MLS. It needed permit violations to be cleared and closed. Many workers at this property were not properly skilled and I have paid to re-do work for trim, plumbing and electrical. I just learned that the in-place HVAC system is used / from elsewhere and has never been connected and shown to be working. The bids I'm getting from recommended HVAC contractors are $5000-7000 for a full new high efficiency system with warranty OR $1500 to connect and test the existing 10 year old system where I have no evidence it'll work. No warranty.

Now this week - owner/investor 1 has offered me a purchase contract to buy the house for the $200,000 private mortgage + forgiving my loan (10k) upon which the house will be deeded to me and I finish up the flip and sell it without further involvement from investor 1. Investor 1 does not want me to spend more money (I had allocated 20k total) on the house to get it to FINAL status under the existing agreement. 

I would have to borrow heavily from family to get $200k cash (at 6%-9%) to close the deal to transfer the deed. 

I have a purchase contract in front of me for 200k cash I haven't signed. (If I had 200k cash 4 weeks ago, I'd've bought a 150k house and manage my own 50k rehab). 

It's possible my 10k may be lost if I don't buy the house because it's a loan to this investor's entity that's probably near bankrupt. I'm trying to bargain with the private lender to let me assume the house subject to the existing mortgage, upon which I can complete the remaining work and sell the house. The longer I wait, the less $$ there is because I will never have my money loan senior to the private mortgage loan of 200k. Holding cost is about $50/day with property taxes, utilities, insurance, and private capital. 

What's BEST is if investor 1 puts up money/time alongside me, we get the remaining 10k in outstanding issues cleared up and sell the house for 250k by listing it in the next few weeks. There's probably almost no profit but everyone's paid off. I am having trouble getting investor 1 to make any decisions or to act rationally. My standing orders are to spend no more money (because investor 1 needs to approve big expenses) with the option to cancel the original agreement and buy out the house for cash.

Big issues outstanding: $2-3k driveway asphalt replacement, $2-6k HVAC repair or replacement, $1-3k plumbing and gas line permitting issues, $1k in washer and dryer appliances (assuming we install any), 1-2k in misc cosmetics (landscaping, staging etc.)

WHAT WOULD YOU DO?

A) Buy out investor 1 with cash or assumed mortgage, finish rehabbing house in your name with various unknown defects from shoddy workmanship, sell it at / near retail, and pray for no future liability issues. Roughly 60 days.

B) Get investor 1 on the same page, get signed personal recourse security for additional $$ you invest, loan up to 10k more for house to get done, sell it with investor 1 as owner, get paid back at closing in 60 days.

C) Walk away from project and/or let it languish by not investing any more time and sue investor & entity for the 10k lent. 

D) Something else brilliant?