This is a numbers game. 

They then pulled the same game on a $25,500 REO and sold it for $150,000.

Note: the local bank may want you to have some skin in the game so it is likely that you will need to put 10% out of pocket. 

I run a mortgage and real estate office in LA and have worked for multiple investors looking to get into the SoCal rental game.

@Rick Pozos This thread is exactly what my heart wants, the whole BRRR process but I find myself in exactly the same position as OP which is $0 in the game.

Your mileage may vary with bigger banks.

I told him I'd be at $75k (what I bought the house across the street for), but encouraged him to get a CMA from a realtor and was off to my son's bb game. 

I find it interesting, as a new person in the real estate game, how incredibly defensive this forum is. 

I would ideally want to do what is typically done in a BRRRR strategy using a conventional loan, however I'm not sure if FHA loans have different rules, or if it varies from lender to lender.

There is an appreciation game that can be played in Minnie, but that involves a lot more risk and that is not how these deals are advertised.