The second-home market, including vacation homes and investment property, is strong and thriving. Approximately 6 percent of all homes sold each year are second homes. In recent years, a rising percentage of buyers have purchased second homes for investment purposes.

According to research by the National Association of Realtors, more new and existing single-family second homes have been selling each year, demonstrating a long-term rise in this market segment. An update during the first quarter of 2003 showed that 15 percent of homebuyers were either purchasing a second home, already owned a second home or were buying a new primary residence and keeping their existing property as a second home.

Trying a location on for size is one way to find out whether purchasing a second home is a good idea. According to EscapeHomes.com there are three reasons to buy a second home.

Since a second home offers a getaway from the hustle and bustle of everyday life, enjoyment is one of the top reasons EscapeHomes.com lists for purchasing a second home or recreational property. There are also investment opportunities that come into play, including diversification, appreciation, rental income and a possible write-off on taxes and mortgages. Retirement becomes the third motivator since it's recommended baby boomers get a jump on retirement living before their favorite location is too costly.

According to the National Association of Realtors, the strong demographic demand from baby boomers, combined with a desire to diversify portfolio assets into more secure investments, shows this market may remain strong for many years to come. Since much of the most desirable land for building recreational property has already been developed in established vacation-home destinations, there is likely to be healthy price appreciation in the future, improving the investment considerations for recreational property.

The increase in second-home sales coincides with tax-law changes effective in 1997. That tax change essentially did away with the capital-gains-tax penalty for most buyers wishing to trade down to a smaller primary residence and use some of their equity to purchase a second home.

Although most buyers are interested in recreational use, a survey by the National Association of Realtors demonstrates a growing interest in investment properties, rising steadily from 20 percent of second-home buyers in 1999 to 37 percent of buyers in 2002.

The survey of existing owners shows that homes purchased for recreational use account for 78 percent of all second homes, with the rest held strictly as investment property. Only 15 percent of all owners sought income from renting their property; however, after the stock market began to falter over the last few years, that percentage has risen sharply among recent buyers. This reflects a greater interest in purchasing for investment rather than a decrease in vacation-home buyers, because the overall market has grown.

The update of second-home buyers during the first quarter of 2003 showed a marked shift toward purchase of investment properties; however, much of that shift appears to be seasonal in nature. Even so, the rising prominence of investment is a motivating factor in the second-home market.

Research shows the typical second-home buyer is 46 years old, while the median age of all existing second-home owners is 61. Owners have held the property for a median of nine years and earned a household income of $76,900 in 2002.

The second-home market appeals strongly to baby boomers who are examining lifestyle considerations. When asked about the prime motivating factor for purchasing a second home, 57 percent said they wanted a family retreat, but there are many other lifestyle and investment considerations.

The size of the second-home market is much larger than earlier believed. It was widely assumed there were about 3.6 million second homes across the country, based on U.S. Census Bureau data. The recent association report indicates there may be as many as 7 million vacation homes in the United States.

Vacation homes can be found in every state, with the most popular locations by the water or in the mountains. Most buyers prefer locations that are within an easy drive. Since mountains, lakes, oceans and rivers are limited resources, property on are near these locations are more likely to gain in value.

Most vacation-home owners want their property for their own exclusive use, with 84 percent saying they never rent their properties. They prefer to be close to where they spend recreational time or to natural attractions. Seventy-six percent want to be near an ocean, river or lake; 38 percent, close to the mountains or other natural attractions; and 37 percent, in a specific vacation area.

Most vacation homes are located relatively close to the owner's primary residence, with a median distance of 185 miles. However, the distance varies widely, with one-third more than 500 miles and one-third less than 100 miles.

By contrast, investment-home owners prefer to be closer to their property, with a median distance from the primary residence of 99 miles. However, 37 percent are less than 25 miles.

EscapeHomes.com compares buying a vacation home today to buying California property in the '70s. Right now vacation properties are priced relatively low compared to where they are expected to climb once the 73 million baby boomer generation begins to retire in another 10 to 15 years.

As summer vacations get under way this summer, vacationers just might return with the perfect souvenir if they find the second home or recreational property of their dreams.