Investors don't despair completely. Though interest rates are rising and pricing jumps have been steep in homes not everything has gotten out of reach. If you stick to properties that are less vulnerable to rising interest rates, and are willing to consider some out-of-fashion cul-de-sacs of the real estate market, you can still find deals that pay an attractive income and have the potential for capital gains.

To make money in real estate in 2006, focus on the sectors that will reap immediate benefits from a strong economy and be extremely choosy. Real estate investment trusts (REITs) that own hotels or apartments might be good choices because they can raise their rents relatively quickly in a strong economy as opposed to office building owners, whose tenants are protected by long leases.

Another option are rental properties in blue-collar neighborhoods of cities in the heartland. As a landlord, you have the opportunity to upgrade the property to increase its income-generating potential.

Real estate won't be the surefire investment in 2006 that it has been in recent years. But carefully chosen investments still make sense as part of a diversified portfolio.