Al and Jan Figone hold lucrative commercial real estate investments in Arizona, Las Vegas, Chicago and Hawaii but, aware of the growth in residential real estate values, they are diversifying with plans to purchase in the vacation home market, perhaps in Hawaii or Lake Tahoe.

"I call my self a 'stock market refugee." I got killed there. I pulled everything out and moved it into real estate. Why residential real estate now? I bought a home in 1975 for $60,000 and no way was it ever going to be worth a half million dollars. It's just never going to happen. Now we are talking $1 million," said Al Figone, who lives with his wife in Almaden Valley and works as a salesman for a manufacturing company.

San Jose independent real estate broker Janet Houde, spent a recent holiday weekend in North Carolina's Smoky Mountains to buy land in a new development where log homes will be among the rustic-styled houses required in the community.

Log cabins require special building skills, materials and maintenance, but the limited number of log homes nationwide and their unique appeal typically makes them a standout for both investors and travelers in the vacation home rental market.

"While we may see a few on the drive to Tahoe, there were many in the Smoky Mountain area. Maybe they just haven't migrated west yet. The general consensus of my friends and family in the area was that the log cabins are fun, but they are clearly a whole other world that needs to be understood before purchasing," said Houde.

As president of the Santa Clara County Association of Realtors and a real estate broker for decades, Houde is well versed in both the advantages and risks of real estate investments.

From real estate investment novices to investment professionals, a growing number of investors are turning to the vacation property investment segment of the second home market.

The National Association of Realtors says 2003, was likely a record year for second-home sales with a projected estimate of 445,000 transactions, compared to 359,000 second homes sold in 2001, and 264,000 in 1991. Most buyers buy seconds for recreational use but the percentage of investors has grown from 20 percent of second home buyers in 1999 to 37 percent in 2002.

The vacation home market received a boost after 911 when fearful travelers, who didn't want to curtail vacations, decided to stick closer to home. Those travelers discovered that vacation home rentals can be bargains, both in terms of cost and quality-of-life, compared to stays at hotels and motels.

The growing baby-boomer market was already buying up second-home properties by cashing in on large equity stakes in existing homes and new tax law advantages. The last recession also encouraged other "stock market refugees" like Figone to find refuge in real estate.

Property investors often bank on appreciation to make their investment pay off. Second home values have increased from a median $162,000 in 2001 to $200,000 now according to NAR, while all home values nationwide are up 40 percent in the last five years, says the Office of Federal Housing Enterprise Oversight. In San Jose, values rose nearly 57 percent during the same period.

While appreciation alone can provide a decent return, additional investment management strategies generate even better returns.

One major strategy is to let travelers pay for the property. Rents on vacation homes typically are cheap enough to be more attractive to travelers than traditional travel accommodations, but high enough to bring in more than enough cash to pay the mortgage and upkeep costs.

Christine Karpinski, a self-taught Atlanta, Ga., vacation property owner and author of the new How to Rent Vacation Properties by Owner (Kinney Pollack Press, $26), says first find a property that will bring in a weekly rent equal to or more than the monthly mortgage payment.

Property rented for 17 to 20 weeks each year, brings in 12 monthly mortgage payments, plus an amount equal to five to eight more payments to cover utilities, homeowner association dues, maintenance, cleaning and other costs.

"None of this works if you are renting through a property management company," says Karpinski.

"In the areas where I am, they charge anywhere from 40 to 60 percent (of your vacation rent). Along the coast it's 30 percent to 45 percent. They are going to nickel and dime you and it's insane," she says.

Even in Hawaii and Lake Tahoe where Figone has been shopping and found property management rates ranging from on 10 percent to 25 percent, saving that cost is key.

"We were quite shocked at their cut and not knowing how else to do it, were ready to jump in with them. Now that we've learned more, I want to see if this is something we can manage ourselves," said Figone.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.