Well, let me give you my breakdown of real estate investments:

Short Sales:

Profitable more in an up market because you are picking up a house for usually about 60-70% of fair market value, the problem with that in today’s market is that you can’t sell a house for 60-70% of fair market value.  So your best option is to rent, but even if you rent it may take 3-5 years for the market to recover enough for you to resell for a profit.  Not only that, it usually takes banks 2-3 months to respond to a short sale offer.

Foreclosures:

They can be profitable in any market if you get it cheap enough, the problem that I usually have with foreclosures is that they cost A LOT of money, and most foreclosure auctions require you to have cash down.  So if you absolutely want a foreclosure, I highly recommend a REO (see next)

REO:

These are properties that didn’t sell at the foreclosure auction, that the bank is now listing with an agent, the appealing thing with a REO is that the bank wants to get rid of it ASAP, and they are much more willing to negotiate then say perhaps a Short Sale.  But again REO properties are typically expensive, so you may have to get a loan for the property.  If you don’t have a lot of money then I suggest a Tax Foreclosure (see next)

Tax Foreclosure (or Tax Sale):

These investments are always profitable in any market because you can get it cheap enough (typically less than $1,000).  I have purchased many tax foreclosure properties through tax sales, and have made lots of money.  I have purchased for as low as $25, and average purchase price is $545.  My cheapest home price was in Michigan last year for $3,000.  The best website to help you learn about tax sales is definitely http://alltaxsales.com.  The way you can be profitable with tax sales is that they are simply so cheap, that you create a lot of instant equity.  I have invested in all types of real estate, and tax sales make me the most money for sure, because a lot of properties you can purchase online, or through the mail.