Seeing if we can afford a million dollar vacation rental property

[Mike Johnson]

Recently married couple, looking to buy a vacation home down the Jersey Shore that we would also offset the cost by renting out in the summer.  Unfortunately the barrier for entry into a lower-end home is about $1 million now, and property taxes are low (likely less than $5k).

I currently have a financed home with about ~250k in equity (2% interest rate), and we have about ~220k in cash.  Our combined salaries are $275k.  The only debt we have a 20 year loan I took out (16 years remaining) left for home renovation with about $35k remaining at 8%.  My wife has never owned a home.  

Ideally for the home we would put a down payment of $200k, and somehow use rental income to help offset the costs of the home as income.

The town we want to buy a home allows for weekly vacation rentals and has about a 100% rental rate in July and August (rents are usually booked out a year +).  The month of June is close to full occupation however rentals  are about 25% less from the July and August.   The months of May and September do rent out but unsure if they would be at 100% occupancy (so want to exclude them from any calculation).

Its hard to gauge what weekly rentals would be without a having a home but weekly estimate would be for the exact home but my estimates are:

$3k - Conservative, $5k - Moderate, $7k - liberal (July and August), the month of June is probably a 25% reduction.

[Anthony DiSanzo]

@Mike Johnson

When you say Jersey shore, are you referring to Monmouth and Ocean County or further south?