High interest for a short duration that you control seems like the way to go to me. 

From my understanding, if its passive income, just a room-by-room rental, it would go on your schedule E just like any other rental. if its active, like a short term rental situation or mid-term, something like an airbnb or bed and breakfast where you're actively including extras, it would be filed on a schedule C. disclaimer, im not a tax person, so double check this with your tax pro. when you go to qualify for your next purchase, whether that's for primary or inv., using a full-doc loan... if its schedule C, you would need to do a 2 year average of this income in order to use it. its looked at as a business, and self employment income. if its schedule E, theoretically you could use the schedule E income calculations just like any other rental even after the first filing.

However, in the short term here are the issues I see:Some buyers will try to save money by going to the listing agent.  

Unless you provide substantial service (more hotel/motel like), the short term rental should be reported on Schedule E. 

And they have apparently allowed water intrusion to remain under portions of our LVT flooring for a period of months.  

It will not invalidate your entire exchange.I'm not sure what "2 year" period you would be talking about   You can sell that property the day after you purchase it. 

Hi All,I've been looking at purchasing a property to use as a short term rental in and around Madison, Lodi, Spring Green, and the driftless region to the west.

We are a HML, owner of a few short term rentals in Pittsburgh and may be able to help.   

I can't speak to a short term rental in these areas but I do have a few specific areas worth mentioning.New England is a popular destination for skiing.

However, my math leaves me a bit short in terms of $$$... $375k * 0.75% (max LTV) =  $281k - $218k (current mortgage) - $15k closing costs (est 4%) = $48k.