There are pitfalls as well. The most obvious opportunity is to buy the property for less than its full market value. A discount of 12 percent to 50 percent is generally needed to buy a property in foreclosure. The cost of tying up your cash in real estate while it is not sold is normally 10 to 18 percent per year. The profit you make is at least 12 percent, usually 20 percent or more, depending on complexity and time required.
Most investors are wary of possible economic downturns, which can drag out the resale.
This, in effect, increases the time cost of their invested cash. Increased time to resell causes the need for a deeper discount to the investor. Land always takes more time to resell than a building, so discounts on land are always deeper than discounts for buildings. It is not uncommon for investors to expect a discount of up to 50 percent on land. In excellent economic times in a high-growth community, sometimes discounts are as low as 10 percent.