Its seems that FHA loans have some type of rule about not loaning money on flipped properties (dumb I know).

Without opening a big *** can of worms and having everybody get on their soapbox about the H-I-G-H-L-Y subjective and dubious "50% rule", the answer to your question is....it depends.a) What is your strategy?

But even then I’d make it conditional, according to the rules of my living trust, upon at least the following: A) Their mortgage payment is 1/3rd of their income or less, B) They have no consumer credit card debt, and C) They have not willfully misspelled any of their children’s names on purpose, just to be different (another pet peeve of mine).

At least then, you will have fixed this by yourself and can claim that you made it right as soon as you realized it was against the HUD rules.

If so, you can deduct up to $25,000/year in passive losses under the "special allowance" rule.

I would call your lawyer and find out with 100% certainty what the rules are in your area.

The reason I love the REO/Default arena is because you have to really understand the law, the rules of ethics, and good business..

Although I do not always agree with Mike's 50% expenses rule, he is close here and may even be under what your expenses will be.

What you most want to avoid are 1) foreclosure, 2) selling your properties at distressed prices, and 3) having to rent to anyone with a pulse just to get cash flow.In personal finance, it is a general rule that one should bank at least six months worth of expenses in case one lost one's job.

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