MILWAUKEE — Opportunists look at the stumbling real estate market and see bargains and the potential upside.

June Schroeder sees a minefield.

Real estate should be part of most investors' portfolios, says the co-owner of Liberty Financial Group Inc., an Elm Grove, Wis., financial consulting firm, echoing the view of other advisers. And it's tempting to wade in when prices seem to be at or near a bottom.

But in real estate, bargains often aren't what they seem. Many rueful investors who leveraged easy mortgages five years ago to buy investment condos and houses are now finding that leverage works both ways. The fundamentals of reaping a return on real estate were obscured by the now-popped bubble, leaving some over-optimistic investors to now learn the basics while they pick up the pieces.

"It's only been in the last 10 years that individual investors have been looking into real estate investment trusts and flipping houses," says Todd Taggart, Grant Thornton's national construction practice leader and tax partner.

He and other financial advisers say that clients present them with a steady stream of intriguing real estate deals.

The first thing the advisers tell clients is that there are two ways to make money in real estate: hands-on and hands-off.

Hands on means buying and actively managing buildings. That includes everyone from the energetic — at first — buyer who spends weekends fixing up rundown bungalows to those who buy a mix of commercial, retail and residential properties and manage them.

INDIRECT MAY BE BEST

Owning properties directly is the most literal form of real estate investment, Taggart says, but it doesn't necessarily yield the greatest returns. What you gain in appreciation eventually, you lose in time and effort along the way.

"Buying a single property isn't really diversifying," he says.

Sinking a lot of money into a house or duplex puts too much risk on that one property. After all, if the renter leaves in the middle of the night, it's up to you to keep up with the mortgage, taxes and other expenses. But if one of the renters in an eight-unit apartment building leaves, chances are there's still enough income for the building to keep paying its own way.

One rule of thumb used by seasoned financial advisers: Don't buy a house, condo or small apartment building unless you can have a year's worth of mortgage payments and monthly expenses in the bank.

Another rule: Don't do it unless you expect to make a half- or full-time job out of maintaining and managing the properties.

The hands-off method is to buy shares in real estate investment trusts, or REITs, or mutual funds comprised of baskets of REITs. The trusts might specialize in a particular type of real estate, or might hold a variety of commercial, retail and residential properties. The mutual funds are diversified by definition.

Know what you're getting into, even though such funds are professionally managed, advises Wayne Archer, executive director of the Center for Real Estate Studies at the University of Florida-Gainesville.

QUALITY MATTERS

Look at the performance of the trusts and funds, but examine the types of holdings they favor even more. Look for well-located properties in markets that are expected to grow, says Archer.

"If you don't feel that you're competent to judge that, then go to a mutual fund of REITs and diversify at that level," he says.

The days of counting on a quick lift in appreciation are over.

Investors have returned to the classic method of capturing return: cash flow. A property that can draw in more cash from tenants builds its fundamental worth along the way, and you won't have to wait to sell to reap your returns.

As always, make sure that your portfolio isn't too heavy in real estate or any other category. Buying a building or a REIT might not actually diversify your portfolio if it already includes your own house, Schroeder says.

For most people, their house is their single biggest asset, so it might already be over-represented in your mix, she says.