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Real estate is a very good alternative to stocks and perhaps other investments at this time, but it needs to be right for you personally as well as right for your portfolio,” says James Boykin, author of “Investing in a Vacation Home for Pleasure and Profit” and a retired professor of real estate analysis at Virginia Commonwealth University.Here’s a look at how the second home market stacks up, what to look for when selecting a property and what it takes to land a loan. “The long-term underlying demand is favorable for vacation homes because of the large number of middle-age, middle income Americans [who are the primary buyers of such properties],” says Walter Molony, spokesman for the National Association of Realtors. “In recent years, this market has been driven by the baby boomers, but there are two even larger population groups coming up right behind them. Those younger segments will continue to fuel this market for the next 10 years.” At the same time, NAR reports the housing affordability index rose 13.6 percent in January to 166.8, the highest since tracking began in 1970.The January index, the most recent month for which data are available, indicates a median-income family, earning $59,800 could afford a home costing $283,400 in January with a 20 percent down payment, assuming 25 percent of gross income is devoted to mortgage principal and interest. A year ago, the same family could afford a home costing $263,300.

“If you have the resources and are confident about your economic future, you’re not going to find a better market than we’ve got today in terms of affordability and raw buying power,” says Molony. “It doesn’t get much better than this.”  Who’s Buying? Those who buy vacation homes overwhelmingly do so for personal enjoyment, rather than investment potential.A 2009 NAR study finds 84 percent of vacation homebuyers were most interested in owning a family retreat, while 25 percent bought with the intent to rent to others and 26 percent are looking to help diversify their investment portfolio.

A smaller percentage – 30 percent – expect to use their vacation home as their principal residence in the future.  Regardless of your intent for a vacation property, however, Boykin notes it’s important to buy with resale value in mind.

Look for views, proximity to amenities and established resort communities, he says, especially if you hope to rent it out part-time.

It’s also best to stay within driving distance of your primary home, enabling you to enjoy your vacation retreat more often and pop in to address problems as they arise.

First-hand knowledge of the market will also help you avoid buying into a community that’s on the outs.

By: Shelley K. Schwartz, Special to CNBC.com | 23 Mar 2009 | 01:15 PM ET