Investment purchases outnumber vacation homes, but keep in mind that many vacation-home buyers view their vacation homes as investments, whether as rental, for appreciation potential, or future conversion to retirement homes.

While buyers of primary residences typically purchase homes because of the desire to be a homeowner or due to a job relocation, buyers of vacation and investment homes are motivated by other factors.

The idea of a vacation or second home usually summons up an image of summers at the shore or wilderness cabins. But second-home markets flourish in a variety of locations—some quite unexpected:

Career military retirees find the proximity to a base makes it easier to access benefits like on-base health care and shopping. College and university towns attract retirees who value the intellectual stimulation of an academic community. College sports attract alumni who rent vacation homes for big football weekends.

What does “vacation home” mean to you? Is it a cabin in the woods, a luxury waterfront condo, a ski chalet, a ranchette, or a place for family reunions?

The opportunity to participate in favorite recreational activities is a major factor in choosing a location. Lifestyles and life stages also make buyers gravitate toward certain locations and types of properties. But, remember that buyers, sellers, and properties seldom fall into neatly distinguished categories.

The boomer generation dominated the second-home market for many years, but Gen X is now catching up and surpassing them. Studies also show that both Gen X and Gen Y greatly value family and recreational time and expect to balance these with their career. Although the over-55 age group still constitutes a very large portion of this market, more than half of second-home buyers are under age 45 (55 percent of vacation-home buyers and 59 percent of investors).

There are two basic financial reasons for investing in a second home: income stream from rentals and potential appreciation

Down payment and underwriting standards for financing a second home or investment property differ from that of a primary residence. Lenders view the second or investment home as more susceptible to loan default if the owner runs into financial difficulty and cannot make the mortgage payments.

Just as with primary residences, availability of homeowners insurance is a major issue for the purchase of vacation and investment properties. Lenders will not approve a mortgage loan if the borrower cannot obtain insurance for the property. Homeowners insurance typically provides coverage for wind and hail damage but specifically excludes flooding—the cause of the most severe damage from storms. Flood insurance covers damage caused by storm surge, wave wash, tidal waves, or the overflow of any body of water over normally dry land areas.