But regular FHA homeowner loans are strict.

Nothing that can't be updated or turned back into a garage.I do hate to see such poorly designed conversions, that just says "I use to be a garage!".

I just added a shortlink for BiggerPockets over on G+ . . . should make it easier to remember, for those of you who are regulars: gplus.to/biggerpocketsIf you're not already on G+, I strongly recommend it.

I.e. work hard to lease out, retains tenants, provides timely maintenance, perform regular inspections.

This is not REO, I think it's a short sale, unless the appraiser website hasn't updated the owner information yet.I don't think this group provides a real inspection period--I can come by and see the house but I do not get an inspection period like you would with a bank--there is a $2000 non-refundable deposit to hold the place.I'll see if they have the power and water on.

Are you having regular maintenance expenses that his internal crew is working on?

The tenant buyers are a totally different kind of person than just a regular "tenant".

I think its a matter spending a little more to hopefully appeal to a larger base of tenants, and maybe even demand a little more rent with an "updated" kitchen.At a minimum I would paint them.

I found out that my regular mortgage is in the second position and my line of credit is in the first position.

I see your point--it's really not much different than a "regular" sale in terms of someone overstaying.