Expansive clay soils  exteme heat and temp swings and big rains...

Which is why leverage is better than cash returns as returns don't have a compounding effect.YUP Texas is a tough place for long term landlords given prop taxs weather and soil.. you NEED massive appreciation to make that market work. it simply did not appreciate as well as Vegas in almost all areas of Texas over the same time frame. 

To Sandy Blanton's earlier questions, I gave my opinion of part 1, but part 2 of your question, "what are the penalties?"

I have no idea about soil conditions where you are or if the land is virgin or been previously developed.

For example, if you have experience and an understanding of soil and engineering, you might focus only on acquiring properties with minor foundation problems. 

I could replace sewer line during my rehab for 1 to 1500 buckarros.. well worth the dollars in my mind and again this goes to the newbie investor not knowing what they don't knowTAke Texas for example I doubt one TK operator talks about Soil expansion and what needs to be done to keep your foundation and house from going cady wampus on you...

@sam I don't have  a budget yet for foundation. as   @Manolo D. said you need soil report and a survey to see how much excavation, cut and fill, concrete and re bar you need. this could be tremendously expensive. however I saw small projects on hillside has been built for $175 per SF but there was not much regrading there.

Due to the National Flood Insurance Program being massively in debt due to Hurricane Katrina, Sandy etc, Congress has started phasing out the subsidies for flood insurance - this just started last year.

You will need a site plan of where the new building will go to show where you will want soil borings done by the geo tech. 

The thing to consider is that you may have to do a special foundation (piers with a void under the beams between the peirs) if the soils are expansive.