A flip that died before a dollar of gap money was drawn, after 4,300 in costs

Here is a case with nothing to show at the end, which is exactly why it is worth reading. A 2 bed cottage in an older part of town, under contract at 142k, rehab scoped at 46k, comps supporting 245k to 255k. A hard money lender approves 80% of purchase and 100% of rehab, so the buyer needs roughly 28k of down payment plus 6k in closing costs against 11k on hand. That sends him looking for gap money, which takes seven weeks. Two people say no on the phone. One asks for 20% of profit and a first look at everything he does for the next two years, which gets declined. The fourth gets to paper: 25k at 13% with 3 points, 9 months, secured by a second and a personal guarantee. The money goes out like this. 1,900 to an attorney to review the gap note and the subordination language, which is money well spent by anyone who does not already read that language fluently. 750 for an inspection during a first extension of the inspection period, then another 600 for a structural engineer to look at a sagging rear addition the inspector flagged. 1,050 in extension fees to the seller across two 21 day extensions while the gap hunt was still running. The engineer's report says the rear addition needs the foundation addressed, rough number 18k to 24k. That puts rehab at 64k to 70k and total in at 212k to 218k against comps that were already optimistic. The hard money lender will fund the extra rehab, but the down payment requirement climbs with the purchase side unchanged, so the gap goes from 23k to about 23k plus whatever contingency nobody can pretend exists anymore. The gap lender reads the engineer's report and pulls his term sheet in one email, which is the correct call from where he sits. The contract goes. Total out of pocket 4,300, plus seven weeks that could have gone into a different house. Two things change that outcome. Get the engineer out in week one on a rear addition anyone can see sagging, before a dollar goes to an attorney or a seller. And line up the gap source before a property is under contract, because negotiating for 25k while a closing date runs at you is how a term sheet asking for 20% of your profit gets a whole afternoon of serious thought.