(FORTUNE Magazine) – So you're feeling pretty good about your portfolio these days, and you're juiced about the future. You're even thinking of cashing in a few winners and investing in a second home--maybe a quiet weekend beach or mountain retreat within driving distance of your primary home, or a getaway in a tony resort hundreds of miles away where you can gather with family and friends for weeks at a time.

You certainly won't be alone. In 1995 a government survey found that there were almost six million second homes, nearly a million more than there were in the late 1980s. Given the market's gains of the past two years, the number has surely grown substantially. Moreover, while the dreamy notion of the mansion hideaway overlooking the ocean still exists in some circles, tastes and attitudes toward second homes have broadened. The new homeowner is likely to be a first-generation second-home buyer, not an heir to old money. And today's retreat is just as likely to be a rustic cabin in the woods on an island near the Canadian border, a townhouse at the foot of the slopes in Telluride, Colo., or a condo with a fairway view in Hilton Head, S.C. "People have a need to escape from the stresses of their daily lives," says Kathy Orton of Walker, Minn., who, along with her husband, Tim, owns a cabin on a two-acre island in Lake of the Woods, a body of water that straddles the border between Minnesota and Canada. "Time really slows down while you're there," she says.

As if such solace weren't reason enough to purchase a second home, many homeowners also look to buy as a hedge against future price increases or with an eye toward retirement. Some will even rent their home for a portion of the year, defraying at least some of the costs of ownership and providing a nifty tax break as well. But don't be blinded by romantic visions of sunset views from the deck of your new home. There are a number of issues--ranging from the tax implications of ownership and rental income to dealing with rusting pipes, renovations, security, and even varmints when you're more than a hundred miles away--that will determine whether you'll enjoy your second home for years to come or rue forever the day you decided to buy.

The good news is plentiful. For starters, interest rates are as attractive as they've been in years (7.27% for a typical 30-year mortgage). Also, lenders are generally as eager as you are to see you move into your second home, which means you'll likely have plenty of competitive options. Chase, Citibank, and others with private banking operations troll the exclusive Hamptons on Long Island, N.Y., scattering friendly fliers in their wake like confetti in a ticker-tape parade. In John's Island, an upscale outpost in Vero Beach, Fla., where single-family houses range from $450,000 to $5 million, the local banks "fight each other for the business," says Joe Weibel, an executive with the development's real estate company. In this environment, lenders are likely to be flexible on interest rates, points, and closing costs, particularly if you walk in with a wad of cash.

While some lenders have deals requiring only a 10% down payment, you'll have more options if you're prepared to offer 20% of the purchase price. Plunk down 30%, and you'll be invited home for dinner. Why? "If your customer runs into cash-flow problems and can only pay one of two mortgages, the vacation home is the one that doesn't get paid," says Maryanne Brogan, vice president of Citibank's Private Banking Group.

Of course, you'll still have to clear the typical debt-to-income hurdles: In general, if payments on debt (mortgages, consumer loans, and credit cards) would exceed 36% of your gross income, lenders will likely frown, harrumph, and clear their throats--unless you've got a healthy annual income and at least 20% for a down payment. "There's an exception for every rule," says Pattie Romanzi, an East Hampton mortgage broker. "Banks are more interested in how much cash you'll have after the close."

Once you've found the best deal, remember you've got another ally in your corner: Uncle Sam. The flurry of changes in the tax laws over the past few years had no impact on the deductibility of real estate taxes and the interest on mortgage debt. All such costs are deductible on up to $1 million of mortgage debt incurred to either buy or improve a principal residence and one other home.

Also, consider this little gift from the government: If you rent either your primary residence or second home for fewer than 15 days during the year, the income is tax-free. That's right, gravy--even if you make a killing by having a home in a city hosting a major sporting event like the Super Bowl. Hotel rooms next summer are already scarce in and around San Francisco, site of the 1998 U.S. Open golf tournament. "This is one of those gimmes in the tax law that gives you a wonderful opportunity to make big money," says Ray Russolillo, a director at Price Waterhouse.

Once you've rented your home for 15 days, your accountant becomes your best friend. At that point, all rental income becomes taxable--not just income exceeding the two-week limit. Most homeowners try to offset any rental income with expenses (such as maintenance, heating, and repairs) and depreciation for tax purposes. Because of the potential for abuse, you'll need to keep a detailed breakdown of who uses your home each day of the year so that any deductible items can be properly accounted for and allocated. That's where your accountant comes in. "The bookkeeping is unbelievably onerous," says Don Aronson, a New York City resident and former Ernst & Young partner who occasionally rents out his home on Long Island in Bridgehampton for portions of the summer. "But it's not all one-sided. For instance, if I spent the weekend getting the house shaped up for renters, the time I was there wouldn't be considered personal use."

Sound like too much of a headache? Well, if you buy a home in a popular resort area, the temptation to rent it for at least a portion of the year may be irresistible, particularly if your neighbors are doing it. Vicki Kenney, an agent with Sound Realty on Cape Cod, estimates that 60% of homeowners in the area she covers rent their houses out part of each year. To New York attorney Abe Wax, being a landlord is old hat. He has routinely rented each of the four homes he's owned in the Hamptons since 1965, and with tremendous success. "My houses pay for themselves," he says. Chances are, you won't be so lucky--unless you own a modest home in a popular summer vacation area where there are long-term renters aplenty and you've made a hefty down payment. On the Cape, Kenney figures someone who puts 20% down can cover mortgage and taxes on a house by renting it for ten weeks every summer.

Renters themselves can pose an altogether different problem--damage control. Wax screens any potential renters himself: He prefers families and likes the parents to be at least in their late 30s. ("They're probably not into drugs and they're not looking for trouble.")

Many homeowners prefer to leave the screening process to someone else, usually a management company. Either way, there are no guarantees that you won't get Mr. and Mrs. Hell-Tenant, their three dogs, and two cats. Arthur Robbins, a New York City CPA who rented out his weekend home in Connecticut for a couple of years, describes his rental experience as a "disaster." The first tenant lost his job and couldn't pay the rent, so Robbins had to hire an attorney to evict him. A second tenant assured the rental agent that only he and his wife would live in the home, then brought along three children and two dogs. "The house needed a thorough overhauling when they left," sighs Robbins. The third tenant used up all the heating oil and supplies, then vanished. "At the end of the day, it just wasn't worth the headaches."

Some potential owners of second homes also reel at the thought that at the end of a hard week at the office, they'll need to make a long and arduous drive just to reach their new oasis. But take heart. For many second-home owners, the drive is as vital to their sanity as the destination.

Warren Jackson, an advertising and public relations executive who lives and works in Hartsdale, N.Y., has been making the 32-hour drive to Cape Cod for 30 years, first as a renter, then as a homeowner. He and his wife, Christina, purchased their first home there 25 years ago, sold it in 1987, and built a new one in Mashpee where they, their three children, and five grandchildren spend summers, holidays, and many weekends. "The drive is always a time to unwind and downshift from the pressures of business," he says. "Besides, the home draws the family together and enables us to spend quality time with the kids."

Jackson has even become inured to perhaps the most persistent problem of second-home ownership: long-distance maintenance and security. "Sure, things break, but that happens everywhere. My wife and I were away, and our daughter called to say a pipe had burst in Hartsdale. I told her to call a plumber and get it fixed."

But what of the potential vandalism and break-ins that can occur while your property is unoccupied for long periods? And how do you manage emergency repairs and renovations when your retreat is, say, on the other coast? Rick Welts, the NBA's chief marketing officer, has an eight-hour journey between his primary residence in New York City and his second home in Palm Desert, Cal. During an extensive renovation four years ago, the contractor came up with an innovative way for Welts to stay on top of the changes--home video. Once each week the contractor would walk through the home with a camera, calling attention to any matters that needed consideration. He then sent the tape to Welts by overnight mail. "I could feel like I was in the house instead of trying to understand it over the telephone," says Welts.

Elise Bloom, a Manhattan lawyer who has a home in Southampton about 100 miles away, has a "house watcher," a neighbor who checks it out on a regular basis and turns on the heat just before she and her husband, Greg, head out for the weekend.

Don Aronson, the aforementioned ex-accountant, has a neighbor, Dave, who does all of the above and even makes sure the battery in Aronson's boat is charged and ready to go. "Everyone needs a Dave," says Aronson. "If you don't have one, you can spend a lot of vacation time fixing things that got broken or were damaged while you were away."

Bob Ritter, an attorney who lives in St. Louis and vacations at his waterfront home in John's Island, has two Daves--daughter Allison Campione and her husband, John, who live nearby and watch over things when Ritter is back home in Missouri.

For further peace of mind, a lot of second homes have a security system. Jim Frost, who is in the computer networking business in Houston, has a state-of-the-art home automation system in his elegant four-bedroom townhouse in Beaver Creek, Colo., where picture windows overlook the majestic slopes nearby. He can regulate the temperature, see if anyone has left the lights on, or determine if a tree has fallen on the roof, all by telephone or computer. Moreover, the system calls Frost if the house isn't behaving as he's programmed it.

One final word: If you already own a home, you probably know that real estate as an investment isn't what it used to be. While most homes in popular areas will probably steadily increase in value, if it's real growth you're looking for, a second home isn't necessarily a cozy solution. "When clients ask, I always urge them not to view a second home as an investment," says Russolillo of Price Waterhouse. "It should be a lifestyle thing, a retreat, a place to get away from it all, not necessarily a vehicle to make money." Robbins chimes in, "If you want to go into the real estate business, go into the real estate business. A second home should be like a painting you buy because you want to hang it on the wall and enjoy it."

REPORTER ASSOCIATE Ann Harrington