Some hard money lenders will fund the project but I agree with Nicholas L's response that it's harder when you are a first time investor without a track record. 

The new buyers will make money on the deal itself.  

Traditional bank loans can be slow and have strict requirements, while hard money and private lending seem to offer more flexibility.For those who’ve secured funding before, what’s been your experience?

This will cost you a lot of money and time.

I have seen these circumstances; people die, go out and buy a car, lose their job, etc… Just my own two cents, I’m not an attorney, just play one on TV

I would like to put the money into purchasing another investment property.

My plan is to buy the house subject to their existing mortgage, renovate the property, refinance it and pay off their remaining loan balance using the money from the cash out refinance.

I would suggest getting Dave Ramsey's book called The Total Money Makeover and read that.

So, that was a waste of time and money, right?

Overthinking doesn’t make you money.