A passive second position on a cosmetic flip that ran 74 days against a 60 day plan is a useful reserves case study

Take a passive lender putting 61k into a light rehab as a secured second behind a hard money first, 12 percent with a 6 point exit fee against a 60 day projected hold. Operator buys at 244 in an affordable Midwest metro, budgets 29k of scope, and pegs ARV at 341. Scope actually comes in at 31.4, only 2.4 over, essentially nothing. The property lists on day 44, ahead of plan. Then the first buyer's financing falls apart on day 58 after nine days under contract, and a second contract closes on day 74 at 337, four under the ARV number. The lender collects 61k plus 1,494 of interest plus the exit fee in full, since a fixed lending position does not share in the upside or the downside the way equity does. The operator absorbs the extra 14 days and the 4k price miss, watching gross profit drop from a planned 47 to roughly 39, a return that fell 17 percent because of a buyer's lender problem entirely outside the operator's control. The exit fee structure holds up well here, paying the lender for calendar risk without an argument when the date slips. What nearly breaks it is reserves: 11k against a 1,600 a month carry is under seven months, and had the second buyer also fallen through, a second lien position would be in a very different conversation. Reserves deserve the hardest underwriting scrutiny in a deal like this, along with a clear answer to what happens on a third buyer, not just the first.