1.  No multiple transactions on the chain of title within a 12 month period.  This means one Investor cannot assign a contract to another Investor or to a different entity before the end Buyer transaction occurs.

2.  There may not be more than 20% profit built into the deal without jumping through additional hoops.  If more than 20% is warranted, then there must be a second appraisal, documentation pointing to extensive repair and renovation needed, including an inspection report. Inspection reports must include the main structural elements of the house and the main mechanical and electrical elements.  Inspections must cover both exterior and interior condition, insulation, ventilation systems, fireplaces and other fuel burning appliances.

Even with a low end property, however, 20% yields a fairly decent profit, especially when you are just starting out in investing.  On a $50,000 house the maximum profit without further justification can be $10,000, while on a $200,000 house the built in maximum can be $40,000.  You can see how dramatically profit will vary just by increasing the value of the property that you go after in the Short Sale marketplace.  Still, the new ruling makes it profitable and simpler to go after low end deals and to put first time Homebuyers in place with these transactions than before when FHA buyers were out of the question.  The Homeowners will no longer be forced to wait for lengthy seasoning periods, and therefore fewer deals will fall through.

3.  As in the past, all FHA transactions must be “arms length.”  Do not try to transact a Short Sale flip with a relative or close associate.

4.  The Seller must hold title to the property.  Make sure that the A to B transaction closes completely with separate funding, and that the sale is officially recorded.  For this reason, it still may not be possible to do a same-day closing with end Buyers with FHA loans; there may need to be a few days to get the deed recorded before the second transaction can take place.

Note by Real Estate Investor Girl: The title must also be officially recorded  before the FHA underwrites the loan. And the Purchase and Sale must be dated on or after the recording.

5.  Make sure that you are investing within an LLC or corporation that has been fully recognized and is legally set up.  Do not try to invest using a DBA. FHA does recognize trusts, if legally set up, but we highly recommend that you use an LLC or corporation as your legal base for your business.

6. The deal must have been marketed.  The FHA will recognize deals that were marketed publically through the MLS, an auction, FSBO service, or through a developer.