The home inspector would be expected to identify a gas leak when the gas IS turned on, but in this case it was not.Now, the mistake made by the OP is that the OP did not verify that everything was properly functional before making the property available for rent.

New to REI, I have a seller that is willing to seller finance a sfh deal in a co op for $140k.  

Assigning a contract, if it does not close. may not relieve the OP of their PROMISE AND DUTY to close.

Agreed ... if Levin thinks that $200/mo ($700*28%) is too conservative for CapEx, Vacancy, and Upkeep then he is in for quite a surprise, as is the OP I suspect.

At 5.375%, OP doesn't have more room for a rate bump.

Just in case that was a tenable option for the OP.

That trick stopped working about 3 months ago, unless the borrower can prove the business has existed for at least 5 years (likely a 5 year old RE agent license, in OP's case). 

I can buy a house or co-op at the end of the year and save 300-400 a month in monthly housing costs (the house PITI is less then my current rent) plus save because I won't be paying NYC taxes either.

It shouldn't matter to the HUD Seller/Lender that the OP may have to foreclose on her Borrower/friend sometime down the track. 

Address this in op agreement.