Before you purchase it, have a professional inspection done, even though most of the time the home is being sold "as is." It also pays to research comparable prices to make sure the price of the foreclosure is significantly below values in the area.

"You can always buy a home in foreclosure, but it depends on how much the lender is willing to lose to get rid of the property," Kaiser adds. "Sometimes you can get a good deal."

Is raw land or commercial real estate a good alternative now?
"Now is a great time to acquire land, because when you look at the residential market, many homebuilders are looking to get their existing inventory off the books," says Ben Reinberg, Alliance Equities LLC, headquartered in Chicago.

"However, if you are going to buy land, you must have the ability to hold that piece of land until you have an opportunity for the next cycle to come around."

When purchasing land, investors should investigate if it has sewer and water, what type of zoning it has and what you can do with it as well as the location of the property. When buying a piece of land, lenders require 30 percent to 60 percent equity depending on where it's located and what the selling price is.

Reinberg believes if you have the opportunity to purchase the land at a discount (less than it would have sold for three to five years ago), buy it.

"There will be opportunities to buy land within the next 12 to 18 months, especially if we go into a recession," Reinberg says. "The market is correcting itself, and was very inflated. Now it's adjusting."

In addition, Reinberg expects the rental market to be strong compared to the condo market, so multifamily properties will be in strong demand as well.

But he does issue a word of caution. "Be careful what you buy in this down market. Due diligence is important, and if you are a novice you may want to hire a commercial real estate broker."

Why not wait until the economy turns around?
"If you wait till the economy turns around, the interest rates may not be as favorable, nor in all probability will there be as much inventory," says Schwartz.

She feels it's hard to predict when the market will bottom out, just as you can't predict when a stock has "bottomed out" until it has started to rise again.

Homes are starting to sell because prices have been lowered, but Kaiser doesn't anticipate home prices dropping much more. Interest rates are also dropping, and that is changing consumers' outlook.