Is rehabbing for me?

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Hello all. Excellent forums here - please help a (potential newbie) a bit.

Background: I'm a software developer who sold his company a while back. I'm doing some smaller software projects now, but sometimes think I'd like to do something a bit more 'hands on'.

I've got a tiny bit of real estate experience (owned my own home for ~10 years, and owned a couple of rental 4-families about 15 years ago that turned out to be a bit of a management headache.) I've only done a bit of small time rehab stuff over the years - some to my own properties and a little bit at other times (painting, floors, landscaping)

That said, I've generally enjoyed it - it's a nice break from sitting at my computer all day.

I'm debating getting back into real estate investing. Rehabbing (and flipping) seems most promising to me, as I don't really want to be a landlord again, and I kind of like the satisfaction of a job well done, that ends up nicer than it started.

Here's my personal 'pros':
- Can use my own capital - the nice side of having sold my biz a few years ago :) Saves me time/money on lenders. Also, I'm in a position where even if I don't make much (any) on my first property or two, as I learn the ropes, that won't hurt me too much.
- Time flexibility. Because I'm doing other computer stuff on the side (working for myself), I can basically put as much or as little time into R.E. as needed, and/or let it grow into a full time gig...
- Reasonable talents. I made a success of my computer biz, am in decent physical, financial shape, and hopefully reasonably savvy. Over time, I can hopefully add knowledge of this biz.
- Decent market. I'm in a good sized midwestern city (2 million+ metro population), that's not as cyclical as the coastal cities.

On the downside, I have only a relatively tiny bit of relevant experience. I've got (I think) pretty high ethical standards, and would want/need to stay away from any aspects of the business that are a bit 'shady' (using illegals for labor, cutting corners on building codes, questionable methods of evicting tenants, etc...)

At a higher level, I'm concerned that the glamorization of real estate investing in general in the last few years, and rehabbing/flipping in particular the last year or two (via TV shows, magazine articles, etc...), combined with an overall sagging real estate market (albeit less so in my area), may mean that now is a poor time to get into this biz. Potentially, there are too many rehabbers chasing too few deals, driving spreads down/eliminating profits.

Thoughts/reactions on any of the above?

Also, what's the best source of deals suitable for rehabbing with reasonable profits? Is it foreclosures and all the avenues associated with it (pre-foreclosure, courthouse auction, REO), or are there better alternatives?