If you didn't get your own inspection and make the inspection repairs during the rehab, the buyer's inspector could find a hefty list of inspection repairs that need to be fixed and repaired.  

My second option is fix and flip out current home we bought last year.

That will not be a cheap fix. 

If your current loan was originally for $340K and you are still paying $214/mo. in PMI, I'm assuming your monthly principal payment plus the PMI is @ $1,808/mo. on a 30 year fixed.

The appraisal came back and the lender is asking for things to be fixed before they can make the loan. 

His only concern is that the turnover is a little bit higher, but that may just be the area and not the type of property.His deal is still profitable because he's doing a lot of the fixes himself and the units are pretty nice.  

So a house could have been standing vacant for MANY years before it ever goes to the sale and just might be so bad that it's not economically feasible to fix it. 

I was able to fix most of the plumbing yesterday. 

I do not understand why the seller would be fixing the septic from proceeds of the sale.  

If BP spends some money on iOS dev contractors to fix app crashes, I'll sign up for the paid membership :) @David Greene, you have all the right connections to make this happen (you came to give a talk at my work on 5/30).Gediminas