Four years ago, the house in which I live sold for $390,000. The real estate market in my area (urban Northeast U.S.) was at an all-time high, and rocketing real estate prices - which fueled high rents and the promise of good rental income - had drawn thousands of investors into the arena. Today, while the house is still valued at $390,000, its market value is significantly less. Similar homes in the same and similar neighborhoods are selling for $205,000 to $250,000.

Stories like this are common across the country, though this one is at the extreme edge. While many people who took advantage of low interests, easy loans and adjustable teaser rates are facing foreclosure and loss, there are ways to take advantage of a depressed market and profit heavily from it. Here are some tips for taking advantage of a depressed real estate market to build your own nest egg.

1. Understand basic principles of profit.

A savvy investor, whether in real estate or any other market, understands one basic principle - the time to buy is when prices are low. While tumbling real estate prices and a stagnant market are bad news for homeowners who bought in the past five years or so, they're excellent news for those who are in a position to buy now, especially for long term investment.

2. Know why you're buying.

There are three major reasons for buying a home in any market: to live in it, to flip it, or to derive steady income from it. A depressed market is an ideal time to buy if you plan to hold the home for a while - not so great if your intent is to flip the property. Flipping properties depends on stable market values or a rising market. A depressed market makes flipping riskier, but not impossible. In fact, if you choose carefully and find real bargains, you may be able to flip properties with a minimum of investment in fixing up.

3. Yesterday's HOT markets are today's opportunities.

When real estate markets get hot, they attract more builders to put up more properties in the hopes of cashing in. Many of the hottest real estate markets of the past five to ten years are now "overbuilt", with far more properties than there are buyers. It's an ideal time for a buyer to come in and purchase stagnant properties at bargain prices. Remember, the reasons that made the area popular still exist, and population will continue to grow. It's just that construction has temporarily outstripped demand. A savvy buyer can take advantage of bargain basement real estate pricing to purchase high end luxury properties, or buy two for the price they'd have paid for one five years ago.

4. Think back to basic economics.

In a rising real estate market (rocketing in some areas of the country), savvy investors were looking for the quick buck. The idea was to buy now and sell higher in a very short time. With real estate values stagnant and even dropping, the shift is to thinking in terms of income generation and cash flow. Rental income is where it's at. In cities around the country, rents have been driven by the inflated value of real estate. As real estate prices come down, rents will - but rental decreases will take a lot longer to fall.

In other words, you can take full advantage of the fact that current rents in a depressed real estate market are based on yesterday's high real estate prices. The rental income that was designed to support a mortgage on a home that cost $390,000 will put a pretty profit into your pocket each month if your mortgage is for half that amount.

The Top Five HOT Real Estate Income Markets in the U.S.

1. Austin, Texas - or most of Texas, in fact. Texas is still one of the fastest growing markets in the U.S., and that growth is fueled by continued economic and job growth, which imply continued population growth.

2. Florida - Like Texas, Florida has been a hot commodity for years now. Many of the major cities are overbuilt, and investors who planned on making a quick turnaround with new construction are holding properties they can't sell. Rents are high, and vacation rental income is even higher.

3. Atlanta, Georgia - Atlanta has a surprisingly vibrant home market, and a mobile population drawn by burgeoning industry and beautiful climate. The high student population and many short-term career hoppers make the rental market a prime one, while low home prices make it a great investment opportunity.

4. Suburban Boston, Massachusetts - High tech, industry and education combine to make Boston a hot rental market, but the real values are in the semi-urban towns that surround the city. Falling real estate prices and rising rents combine to make rental real estate an excellent long-term investment in this area.

5. Las Vegas - Sin City is right up there with the most overbuilt areas in the U.S. Rising real estate values drew investors, and the glut on the market has driven those values back down again. However, the city continues to draw population and to grow, so this is the time to buy in.