Here's a link you may find useful. http://www.foxbusiness.com/personal-finance/2013/08/07/tax-rules-on-renting-your-vacation-home/A word to the wise, however, vacation rentals or "Air B&B's", the new trendy cliche of the day, are not always the most desirable investment for the unseasoned investor.

Personally, I think your thinking is wise and if you go that route, I'd suggest you approach it as a JV initially and work toward being partners.  

I am voting for your post since you wisely escaped winter (and high real estate prices, compared to much of the lower forty eight).....

I was following Wise there and wasn't correct, assumed they changed (4th mistake this year now, LOL)   :) 

I see the cash flow adding up to only $115k by the end of year 6...so the investor is almost $200k behind cash wise...which means it would take almost 4 more years just to break even.I would love to hear from those where this worked for them, and specifically in what market.  

My other question is whether or not it might be wise to get a 15 year fixed on the one that cash flows $1000 plus if I can still cash flow $500 or more on that property.And if I didn't live in either, would I be ok if I was to rent something smaller, or would that cancel out the benefits?

@Chantz Ireland - if you do not have the cash to fix the roof, then borrowing it would be wise... a leaky roof can cause a load of damage (not to mention unhappy tenants) and should be fixed immediately as the above posters noted.As for the windows, there are so many options out there, choose wisely.  

@Jo-Ann Lapin @James Wise  and @Steve Snyder Thank you for the warm welcomes!

However I don't think it is wise for me to make it comfortable for her to text me all the time for tiny repairs.  

I think you are wise to underwrite conservatively to allow for margin of error (and profit) in your cash flow.