Very dangerous if that is the case.

The rehab costs have far surpassed our budget due to some masked issues(missing copper lines in walls, dangerous wiring almost throughout...all covered with sheetrock) Also, the city is requiring us to pour new approaches at "multifamily" thicknesses; about $9k worth.

Although that data is related to whether or not you can get good financing on it, what I am looking for is what red flags should I look for in the HOA Resale package which would indicate future success or danger as a rental property.

Flipping for the first time alone is dangerous.

You are making a very dangerous assumption and that is that this house is exactly the same as the houses that are selling for $400K in the same location.

It's dangerous to look at a deal from only a percentage view alone and it is wise to also consider your straight flat rate dollar return.About flips, often outside investors come to Pueblo and rehab based on what the market/buyer they left (NY, CA, TX, Colo Spgs, Denver, etc) would want a rehab to look like and not what a Pueblo buyer will expect.

Personally I love the power leverage provides, but as with all powerful tools it can be dangerous.  

This could be dangerous for you long term. 

In danger of losing two of the properties to the city (wish to keep)The investor is seeking to either sell two properties or find alternative finance.

Buying for appreciation always seems like a dangerous game.